With the ongoing debate about the future of social security, employees are
more concerned than ever about their retirement. Employers should be equally
concerned and take additional steps to help them save through
company-sponsored retirement plans. As a plan sponsor, it is important to
understand the rules, regulations and responsibilities. Following are some
areas to consider.
PLAN DOCUMENT.
Know your plan document. Most compliance requirements flow
directly from it. As legislation and individual offerings can change, be
sure to review the plan document on a regular basis.
TIMELY DEPOSITS.
Employee salary deferrals must be deposited as soon as
administratively possible and no later than the 15th business day of the
following month. Many employers believe that this is a 'safe harbor' and
wait to make the deposits. Deferrals should be sent in as soon as they can
be segregated from the company's assets. If an employer can segregate and
remit employee tax withholdings in 3 days, it would be hard to explain why
employee salary deferrals could not be remitted as quickly.
CORRECT COMPENSATION.
Each plan's definition of compensation can vary
greatly. Does it include bonuses' What about fringe benefits? Is the same
definition of compensation used for employee deferrals and employer matching
contributions? Understanding these nuances are critical when calculating
contributions, employer matches or completing the yearly census for
compliance testing.
ADP AND ACP TESTING.
A common mistake when conducting tests is to exclude
eligible employees from the census. All employees who are eligible to make
deferrals for all or any portion of the plan year, including those who elect
not to participate, must be counted.
HARDSHIP DISTRIBUTIONS.
Most employers ask employees for documentation when a
hardship distribution is requested. This may be a foreclosure notice or copies
of medical bills. Equally important is suspending the employee's deferrals for a
period of time following a hardship distribution, generally six months to a year,
as required by the plan document.
CATCH-UP CONTRIBUTIONS.
Many benefit plans, particularly 401(k) plans, allow participant
age 50 or over to make additional salary deferral contributions beyond the general limits.
Employers are required to notify eligible participants of their option to make these
catch-up contributions.
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SUMMARY REPORT DISCLOSURES.
The summary annual report is a narrative form of the
Form 5500 that must be distributed to all employees within 9 months after the plan
year-end or 2 months after the latest 5500 filing extension. If the plan is amended,
an amended summary plan description must be given to participants within 7 months
of the plan year-end. Providing copies of these items in places frequented by
employees, such as a break room, does not meet the burden for proper distribution.
The method employed must be reasonable as to ensure receipt by all participants,
such as including with a paycheck or posting on an intranet site, provided there
is notification of its availability. In addition, a copy must be delivered to
terminated participants within the same time frame.
MISSING PARTICIPANTS.
Employers are always trying to locate participants who are no
longer employees. Finding them may be as simple as checking related employee records
to make sure that the address for other benefits is the same or by notifying the
listed beneficiary that every participant must select when enrolling in the plan.
Commercial locator tools or credit reporting agencies are available as well via the
internet. The best option is often the government sponsored letter-forwarding service
offered by the IRS
(www.irs.gov)
and the Social Security Administration
(www.ssa.gov).
These websites offer published guidelines for using this service.
FORFEITURES.
Employer contributions forfeited by participants who terminate before
meeting vesting provisions are transferred to a holding account. Depending on the type
of plan, forfeitures may be allocated to the participants, used to pay plan expenses or
used to reduce employer contributions. While most outside administrators keep track of
the balance in the account, they may not notify you when there are funds available for use.
BUSINESS DECISIONS.
Some business decisions can have a major impact on the plan and its
participants. Closing a location or division, or starting a joint venture, for example
will affect your plan and its operation. These decisions could potentially disqualify
the plan, cause frustration and cost money in the form of penalties, interest, accounting
and legal fees. When making these decisions, be sure to speak with your accountant and
ERISA attorney to proactively address any plan issues. It is generally too late to
address compliance issues if they are found during the year-end audit and always more
costly to fix.
There are numerous resources available to answer any questions about your pension plan,
including your TPA, accountant and attorney. Additionally, the Department of Labor has
a terrific website and helpful and responsive staff. Answers are never more than a phone
call or mouse click away. Please contact us if you have any questions.
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