March 23, 2018
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. Some of the most common occurrences are enrolling new employees too early into the plan, providing the employer match on a payroll by payroll basis when it should be based on full year salary, and reflecting the wrong vesting schedule. 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, 2017 even though the agency is poorly staff they still found a way to levy fines and pull in collections.
| 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 |
| $1.1 B | $682.3 M | $10 M | $27.9 M | $418.7 M |
What do these numbers really mean? For starters they collected $418.7M due to employees reaching out to EBSA directly (an increase over 2016) there were over 174.6K inquiries. Some of these inquiries then led to additional investigation for fiduciary breach leading to a civil investigation. Over 65% of the 1,707 civil investigations closed 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 proactively 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. There were over 22K delinquent filers entering the DFVCP program alone.
The Benefit Practice has put 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 An Audit” kit please contact your Retirement Sales Director at The Benefit Practice or call (203) 517-3502.
