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.
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.
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.