Tag Archives: employee benefit plans

The 2017 Employee Benefit Plan Benchmarking Survey

benefit plan

Participate in Aronson’s 3rd Annual Employee Benefit Plan Benchmarking Survey and receive a free copy of the report that will help you evaluate how your plan stacks up against more than 200 of your peers. Retaining talented employees is a vital part of doing business, and employee benefit plans can be valuable tools in achieving your business goals.

Our Employee Benefit Plan Benchmarking Survey is quick, easy, and comprehensive. The survey covers all aspects of employee benefit plans and will take no more than 10–15 minutes to complete.

Aronson’s Employee Benefit Plan Benchmarking Survey will help your organization stay competitive by:

  • Benchmarking your employee benefit plan offerings and key provisions against other similar plans
  • Gaining insights into trends occurring in the marketplace complemented by expert insights from Aronson’s employee benefit plan specialists
  • Breaking down this complicated area with fresh data, straightforward charts and graphs, and actionable best practices

Complete the survey today by clicking the link below, and you will receive the Benchmarking Report free of charge in April. The survey closes on March 9th.

Survey Here!

Retirement Plan Corrections Get Easier

Several weeks ago, the IRS released two new revenue procedures (2015-27 and 2015-28) designed to make plan corrections easier and less costly to employers through the Employee Plans Compliance Resolution System “EPCRS.” Rev. Proc. 2015-28 provides particular relief related to the correction of certain employee salary deferral errors for employers sponsoring 401(k) and 403(b) plans.

Retirement plans are required to operate per the rules set forth by the Internal Revenue Code and the governing plan document. Failure to abide by these rules gives rise to a plan failure called an operational defect. The EPCRS was established by the IRS in order to provide a framework for the correction of such operational failures so that employer-sponsored plans could maintain their qualified tax status. Correction of these errors can be made through a formal submission via the EPCRS or through self-correction depending on the facts and circumstances of the error(s). The IRS has worked diligently over the years to encourage employers to correct errors as soon as possible and to streamline corrections under the EPCRS.

Prior to the new revenue procedure, the standard correction for missed employee pre-tax salary deferrals was a corrective contribution made by the employer equal to 50% of the missed salary deferral  and 100% of the missed employer matching contribution plus lost earnings. Revenue procedure 2015-28 established some new safe harbor correction methods for certain missed deferral errors that require reduced corrective contributions by the plan sponsor.

A general description of the new safe harbor corrections is detailed below:

Failure to Implement an Automatic Contribution Feature Includes auto enrolling an eligible participant at the auto percentage, implementing an affirmative election made by a participant in lieu of the auto percentage, and failure to implement the proper auto escalation percentage. If the failure to implement the correct withholding does not extend past 9 ½ months after the year of failure, then no corrective employer contribution is required to correct the missed deferral. However, the entire missed matching contribution must be contributed as if the participant withholding began when it should have. Earnings must be included as part of the corrective deposit and notice must be provided to the participant no later than 45 days after correct deferrals begin.

If the failure to implement the correct automatic contribution withholding extends past 9 ½ months but deferrals begin prior to the end of the second year following the end of the year the failure began, then the employer must make a corrective contribution equal to 25% of the missed employee contribution. The remainder of the correction methodology follows the process detailed above.

Failure to Implement Employee Deferrals – If the failure to properly implement employee salary deferral elections is corrected by the first payment of compensation three months after the failure occurred, then no employer corrective contribution is required.  However, the entire missed matching contribution must be contributed as if the participant withholding began when it should have. Earnings must be included as part of the corrective deposit and notice must be provided to the participant no later than 45 days after correct deferrals begin.

If the failure to implement the correct contribution withholding extends past three months but deferrals begin prior to the end of the second year following the end of the year the failure began, then the employer must make a corrective contribution equal to 25% of the missed employee contribution. The remainder of the correction methodology follows the process detailed above.

Errors caught after the timeframes referenced above or failure to provide the required notice revert back to the standard correction methodology.  This clearly provides additional motivation for employers to police their plans carefully so they can benefit from these new safe harbors and reduce the cost of certain plan corrections.

This is designed to merely be a brief description of the new correction rules. Any employer that believes they have plan errors that can be corrected through the new safe harbor methods should contact Mark Flanagan of Aronson’s Employee Benefit Plan Services Group at 301.231.6257

Lack of Documentation Still an Issue During 401(k) Audit Season

The employee benefit plan audit season, which lasts from April through the extended Form 5500 filing deadline of October 15th, is well underway and we are finding that lack of proper documentation for plan transactions – typically hardship distributions, participant loans, and rollovers into the plan – is still an issue for many plan sponsors.

Earlier this year the Internal Revenue Service (IRS) posted clear guidance on its website reminding plan sponsors that obtaining and retaining records related to hardships and loans is their responsibility, even when recordkeeping for the plan is outsourced to a third party administrator. Specifically, with respect to hardship distributions, the following documentation should be kept:

  • Documentation of the request, review and approval;
  • Documentation supporting the employee’s immediate and heavy financial need;
  • Documentation supporting the distribution was made in accordance with plan provisions and the Internal Revenue Code; and
  • Proof of the actual distribution made and related Forms 1099-R.

While the plan sponsor can accept a participant’s self-certification regarding his or her immediate and heavy financial need, the other support should be collected by the plan sponsor and retained in either paper or electronic format.

With respect to participant loans, the IRS website indicates the following records should be kept:

  • Evidence of the loan application, review and approval process;
  • Executed plan loan note;
  • If applicable, documentation verifying that the loan proceeds were used to purchase or construct a primary residence;
  • Evidence of loan repayments; and
  • Evidence of collection activities associated with loans in default at the related Forms 2099-R, if applicable.

With respect to loans with terms in excess of five years to be used for the purchase or construction of a primary residence, the website is very clear that self-certification of the eligibility for these loans is not acceptable.  Failure to start the repayments is a common finding in our audits, so be sure to have procedures in place to initiate these repayments as soon as the loan is issued.

The audit of rollover contributions is another area where we often cannot see evidence that anyone considered whether the incoming funds were from a qualified plan.  In 2014, the IRS issued Revenue Ruling 2014-9 to provide some safe harbor procedures for a plan sponsor to follow to ensure a rollover contribution is from a qualified plan, including the employee’s certification of the source of the funds, verification of the source of the payment (i.e. the name of the former plan or IRA), and, if a former plan, looking up the most recent Form 5500 filing on the Department of Labor’s EFAST2 database.

If you are the party responsible for approving these transactions, be sure to follow the guidance!

For more information on employee benefit plan documentation requirements, please contact Aronson’s Employee Benefit Plan Services Group at 301.231.6200.

Employee Benefit Plan Management: Is Your Plan Being Operated According to Intention?

Aronson conducted its first employee benefit plan benchmarking survey in 2015. The survey provided a wealth of information on plans from companies located primarily in the DC Metro region. Respondents shared some very useful information regarding their employee benefit plan management strategies:

“Who is in charge of the plan?”

When we asked respondents this question, we were pleased to see that 76% noted that senior members of management were in charge of the plan. The plan sponsor is ultimately responsible for the administration of the plan, compliance with the applicable provisions of the IRS and Department of Labor (DOL), and fiduciary responsibility over the investments within the plan.

Administration of the Plan

In Aronson’s experience, although senior management is ultimately responsible for the plan, the actual administration of the plan is passed down to a lower level staff member. Problems may occur when the staff member responsible for the day-to-day administration of the plan is not involved in the decision making surrounding the provisions of the plan. Typically, members of management set the plan’s key provisions: who is eligible to contribute, whether or not participants must be employed at year end to receive employer funds, types of compensation eligible for calculation of employee and employer contributions, etc. The plan document, which can be a collection of documents (e.g., adoption agreement and corresponding basic plan document, summary plan description and loan policy), is the agreement that stipulates the provisions of the plan.

Best Practices

A thorough review of the plan document to determine it properly reflects management’s intentions is critical. This is particularly important when the plan is adopting a new provider’s document to ensure that the only changes to plan provisions are changes management intends. We also encourage a review when there is a “simple” restatement with the same provider. This occurs when the provider’s documents have been updated for new IRS regulations without changing the plan’s basic provisions. There could be clarifying language added to previously unclear provisions that must be reviewed to ensure the plan document continues to be a reflection of management’s intent.

In addition to ensuring the plan document reflects management’s intentions, you must be sure the staff responsible for the day-to-day administration of the plan is aware of these objectives and has a deep understanding of the provisions of the Plan document. Often these individuals may not have been included in the discussion and decision making stage or have access to the plan document. This may lead to them handling situations in direct opposition of the plan document and management’s intent. In addition, when there is employee turnover in the administration position, management must be sure the new individual(s) fully understand how the plan is to be administered. While never intentional, errors are not uncommon when individuals responsible for performing the day to day administration of the plan are not properly supervised.

Key Takeaways

  • Be sure your Plan document reflects management’s intentions with regards to plan provisions.
  • Staff involved with the day-to-day administration of the plan must understand the importance of the role.
  • Administrators must be provided with proper training and oversight.

Remember, as the plan sponsor, you have ultimate responsibility for the plan, even when many of the administrative duties for the plan are outsourced to another employee or third party administrator. Following these best practices can help you avoid costly IRS and DOL penalties down the line, while ensuring your plan is administered as management intended.

For more information on benefit plan administration, please contact Aronson’s Employee Benefit Plan Services Group at 301.231.6200.

Employee Benefit Plan Fiduciaries – What You Need to Know

With the Department of Labor’s release of its proposed conflicts of interest rule and recent court cases involving fiduciary duties, fiduciary responsibilities are getting a lot of attention. If you are a fiduciary for your company’s retirement plan, now is a good time to review what your role is and make sure you are meeting your obligations.

In our recent Employee Benefit Plan Benchmarking Survey, Aronson asked retirement plan sponsors about their governance practices, specifically whether they use an outside advisor and if they have a 401(k) committee. Not surprisingly, 80% of respondents indicated they did use an outside advisor, and 71% of those met at least annually.  However, only 44% of respondents reported having a 401(k) committee.

Best Practice: The plan sponsor should establish a committee that meets regularly to discuss topics of importance to the plan, including a review of the investment options, investment performance and fees.  Meetings should be held no less than annually, but semi-annual or even quarterly meetings can keep the importance of the plan at the forefront.  Meetings that involve a discussion of the investments should include an outside investment advisor if investment expertise is not found on the committee. The committee should make changes to underperforming funds where appropriate and monitor investment fees. Keep minutes of these meetings that include the information reviewed and any fiduciary decisions made.

Fiduciaries must act prudently and manage plan assets solely in the interest of the plan’s participants and beneficiaries.  With the heightened attention being focused on fiduciaries, it is important that those in this role understand their responsibilities.  Many organizations offer fiduciary training, and it would be best practice for such training to be provided to members of the retirement plan committee.

For more information on fiduciary responsibilities and effective plan governance, please contact Aronson’s Employee Benefit Plan Services Group at 301.231.6200.

View Archives

Blog Authors