Are you ready for 2016? Do not forget your retirement plan! Get ahead of the game this January.
Beginning the year with an internal review to ensure payroll, personnel, and benefit systems are functioning properly can save you time and money. Having a set of policies and procedures in place at the beginning of the year will help to make sure you do not fall behind on monitoring your plan operations. With the recent completion of another benefit plan reporting and audit season, we have compiled a brief checklist of how to avoid some of the common problems we have seen while auditing a company’s benefit plan.
Download Aronson’s free 2016 Retirement Plan Readiness Checklist, which provides reminders regarding the set-up of payroll systems, deferral election processing, employer contribution pitfalls and other areas where errors can occur.
Questions about your individual benefit plan? Contact Aronson’s Employee Benefit Plan Services Group at 301.231.6200.
Earlier this year, Aronson released the results of our first annual “Employee Benefit Plan Benchmarking Survey”, a valuable tool for appraising your organization’s benefit plan strategies against those of other employers. If you haven’t downloaded it already, we encourage you to do so by clicking here.
Now that you are armed with that information, you might be wondering about the next steps for further improving your benefit plan strategies. Part of that process includes evaluating your plan auditors.
A 2015 report by the Department of Labor (DOL) indicated that 39% of employee benefit plans had “unacceptable – major” deficiencies, putting $653 billion and 22.5 million retirement plan participants at risk. The experts of Aronson’s Employee Benefit Plan Services Group have put together a comprehensive white paper that explores the results of the study and offers practical considerations for evaluating a benefit plan auditor. Download the “The DOL Audit Quality Study: Understanding & Avoiding the Risks of a Deficient Audit” white paper as a free resource to help you avoid the common pitfalls discussed in the DOL report.
For more information about Aronson’s audit and plan management services for employee benefit plans, please contact our Employee Benefit Plan Services Group at 301.231.6200.
Even though it is often overlooked by plan sponsors, a 401(k) plan is one of the most important assets to your company because it pertains to the retirement welfare of your employees. 401(k) plan assets are not considered an asset to the company itself. They are never recorded as an asset on your company financial statements and, in fact, the only impact that they have on corporate financials relates to recording employer contributions through the income statement. That said, the responsibility and oversight of a 401(k) plan should never be disregarded, especially when it comes to the maintenance of plan investments.
As indicated by the Department of Labor, the responsibility of a plan fiduciary is to act solely in the interest of plan participants by carrying out the duties of the plan with skill, prudence and diligence. Carrying out such duties can be extremely difficult for plan sponsors in reviewing plan investment offerings for performance and fees as this is not typically the expertise of plan sponsors. This does not mean that a plan sponsor has to be a certified financial advisor in order to sponsor a 401(k) plan; however, you may need to consult a third party investment advisor. If you do not currently meet with a third party to review your plan investments, are you able to answer the following questions:
If you are unable to answer the questions above, odds are that you are not acting with the skill, prudence and diligence required of plan sponsors by the Department of Labor — a deficiency that should be remedied quickly. Please contact Kayla Kania of Aronson’s Employee Benefit Plan Services Group at 301.231.6240 with any questions or to discuss the next steps in resolving this issue.
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
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.