March 8, 2016
Who’s Going to Really Know?
Every so often, with a new client, we find that its year-end test results do not reflect the actual plan provisions. One of the more common issues is permitting employees to enter the plan after 3 months of service but the prior TPA’s valuation report shows all short term employees are excluded. Uh oh … we have a compliance issue. Almost always the plan sponsor is unaware of this discrepancy and doesn’t know what to do next. When we explain the voluntary compliance options and cost they sometimes say, “Who’s going to really know? Let’s just fix this going forward.”
Putting aside, temporarily, our professional responsibility to ensure that all of our clients are fully compliant with the rules and regulations governing a qualified plan, who’s going to really know? The answer is becoming more and more apparent – The IRS, the Department of Labor, and even plan participants.
Each year the Employee Benefits Security Administration (EBSA) releases statistics that show the amount of money they restore to plans, collect in correction programs, and recover due to participant’s complaints. The numbers are staggering. As shown below, 2015 was another banner year for fines and collections (click on the link for the full 2015 EBSA report 2015 EBSA Report).
| Total Monetary Results | ||||
| Total Recoveries | Plan Assets Restored/ Participant Benefits Recovered | Voluntary Fiduciary Correction Program | Abandoned Plan Program | Monetary Benefit Recoveries from Informal Complaint Resolution |
| $696.3 M | $265.3 M | $14.3 M | $13.8 M | $402.9 M |
What do these numbers really mean? For starters they collected $402.9M due to employees reaching out to EBSA directly. Some of these inquiries then led to additional investigation for fiduciary breach leading to a civil investigation. Over 67% of the 2,441 civil investigations resulted in monetary fines and penalties.
A retirement plan sponsor has a fiduciary duty to ensure that his/her plan complies with all federal and state rules and regulations. Plan sponsors must follow the plan’s provisions without deviating from them unless the plan has been amended accordingly. Failure to follow the provisions can lead to plan disqualification.
With government agencies continuing to strengthen their enforcement divisions, it is prudent to have your clients and prospects’ retirement programs reviewed pro-actively to ensure:
- Compliance with the plan document,
- Amendments are properly signed and dated,
- Plan notices are distributed in a timely manner (e.g., quarterly statements, initial and annual 404(a)(5) participant fee disclosures, Qualified Default Investment Alternative notices, safe harbor notices, etc.),
- 401(k) deferrals are consistently being deposited within a set time-frame (safe harbor rule for plans with less than 100 participants is 7 business days),
- Census population is consistent from year to year,
- Investments follow the Investment Policy Statement, and
- Investments are reasonably priced.
As financial advisors you might have heard this all before and maybe even feel it will never happen to YOUR client but understand your competition is now speaking with plan sponsors about not only plan design ideas but compliance issues. It is far better and far less costly for your client if they discover a potential issue (with your assistance) then if IRS discovers it for them.
The Benefit Practice is in the process of putting together an audit “How To” kit made up of best practices from our partners that we will make available to you. While this will not prevent a random audit it might help prepare your client for one.
To learn more about this topic or to request the “How to Prepare for A Retirement Plan Audit” kit:
Email us at: Info@BenefitPractice.com or call us toll-free at: (855) 738-9778
