Step 1:

One thing that concerns me most when I do a plan audit is the liability of the plan sponsor. So, in the next few posts, you’ll get information about how to reduce your exposure and liability with plan participants, the Department of Labor and the IRS.  The first step is to take a look at the way the plan is structured – whether it’s brand new or has been in place for years. Read the rest of this entry »

We live in a litigious world. And, unfortunately, 401(k) plan sponsors are a ready target for litigation when benefit plans don’t measure up to expectations. Proper plan administration gives clarity to plans and can help avoid litigation. Here are a few prudent procedures:

• Establish a plan administrative committee – Make sure that all members of the committee are familiar with the plan documents. Established regularly scheduled meetings and keep records of the discussion.
• Appoint fiduciaries to monitor the plan – You’ll need appointing fiduciaries as well as plan fiduciaries. Those who appoint members should not manage the plan, and all members need to be covered by ERISA fiduciary liability insurance. Provide training to fiduciaries, especially when there are changes in ERISA laws.
• Review plan performance as well as the performance of the fiduciaries – At least annually, review investment policies and agreements with outside fiduciaries. Consider hiring an outside investment consultant periodically.
• Stay on top of plan-related fees – Get full disclosure from all vendors and communicate fees to employees.

A well run plan has a positive impact on your company, employees and you both now and in the future. And, a well-run plan is easier to audit, saving your company money in audit fees.

There will be no reprieve for late filings of Form 5500’s for 403(b) plans.  The Department of Labor (DOL) decided not to grant a unilateral extension for Form 5500 and 5500-SF, which was due July 31, 2010. You can, however, file Form 5558 to get a 2 ½ month extension. The DOL believes that the current processes for obtaining an extension meet the needs of plans that need additional time to file. Retaining the deadline also avoids complex and costly system changes.

The American Benefits Council had requested that the deadline be moved to the later of December 31, 2010 or 9 ½ months after the end of the plan year. They were concerned about stress on companies filing a new form or filing for the first time. In addition, the need to file electronically using EFAST2’s Web filing or an EFAST2 vendor was complicated due to the recent completion of software implementation.

The July 31 deadline applies to a calendar year plan.

The much-anticipated ruling by the DOL regarding fee disclosure for service providers reached an “interim final regulation” on July 16, 2010. All service providers will need to comply with the ruling by July 16, 2011, regardless of effective agreement dates. The final requirements varied somewhat from the proposed requirements. Here is a summary of the final regulation:

1. Fee disclosures must be made in writing, although a formal written contract is no longer required.
2. Service providers need to make required disclosures for previous contracts as well as new or renewal agreements.
3. The entire rule applies only to pension plans, not welfare benefit plans. Parts of the rule apply to 401(k) and ERISA 403(b) plans.
 The rule does not apply to IRAs, Simple IRAs or SEP IRAs.
4. The covered service provider must expect to receive $1,000 or more of direct or indirect compensation. Covered services include:
  fiduciary services,  recordkeeping or brokerage services and ‘other’ services where an affiliate or subcontractor receives indirect compensation.
5. Ruling applies to all compensation, direct or indirect.
6. The full disclosure requirement related to compensation will cover and thus eliminate the need for disclosure of conflicts of interest.
7. Providers of multiple services are required to disclose the cost of recordkeeping services separately.
8. The excise tax for engaging in a prohibited transaction applies to covered plans and thus amends the 4975 regulation.
9. As long as the provider acts in good faith with reasonable diligence and corrects any error within 30 days of discovery, there is
 no violation of the ruling.

The clarity of the ruling is welcome news to those of us who have been following the progress since it was proposed in 2007.

A recent article from CFO Magazine discusses what companies are doing to help employees avoid bad investment decisions, including the most common poor strategy, which is doing nothing to manage their investments.  More than half of companies are now offering access to online investment guidance.  Read details in the full article here:

http://cfo.com/article.cfm/14485672/c_14485781?f=SalmonSimsThomas&Associates

From the Wall Street Journal blog, Financial Advisor:  A story about who inherits 401(k) funds when the beneficiary turns out to be responsible for the death of the plan participant.  Differences in state law and IRS regulations create an interesting set of factors in these cases, creating new opportunities for judges to weigh in and possibly create new case law.

http://blogs.wsj.com/financial-adviser/2010/05/03/a-case-of-murder-and-retirement-money/

The Department of Labor allows an exclusion from the annual audit of assets of the plan which are held by a bank or similar institution or insurance company that is regulated and subject to periodic examination by a state or federal agency. This applies if the institution holding the assets certifies the required information and the plan administrator exercises this option. The exercising of this option allows for a limited scope audit, which is substantially less in scope and costs significantly less than a full scope audit.

Your auditor should show you the courtesy of determining whether the audit is to be full or limited scope before quoting you a price. An auditor can still perform a full scope audit when a certification exists, but the more client friendly approach is to indicate that a limited scope audit can be performed.

However, limited scope audits cannot be used in all situations in which a certification exists. For example, if the certification does not cover certain plan assets, then those assets are subject to full audit procedures. Also, plans that are required to file a Form 11-k should have a full scope audit. The reason for this is that the Securities and Exchange Commission will not accept a limited scope audit report in connection with a Form 11-K filing.

Every year you should review your requirements for operating your 401(k) retirement plans. The IRS has an online checklist to help you keep your plan in compliance with many of the important rules.

You can find it here:  http://bit.ly/bIU7ed

New for 2010: Tax Credit Helps Small Employers Provide Health Insurance Coverage

WASHINGTON ? Many small businesses and tax-exempt organizations that provide health insurance coverage to their employees. See news release here http://bit.ly/97jDNm

This is a terrific resource for anyone involved in the employee benefits area

The Retirement News for Employers is a periodic newsletter with retirement plan information for employers and business owners from Employee Plans (Tax Exempt and Government Entities (TE/GE) at the IRS).

You’ll get information on:

• New rules affecting retirement plans;
• Retirement plan forms and plain language publications;
• Retirement seminars geared toward employers and owners; and
• Developments from other federal agencies.

click here http://bit.ly/aQOIzh