Unless your company has multiple retirement plans and a separate benefits department, it is not uncommon that the oversight responsibility for your retirement plan falls on one or two individuals. These individuals likely have other primary job responsibilities and may not be intimately familiar with the Department of Labor’s (DOL) Rules and Regulations for Reporting under the Employee Retirement Income Security Act of 1974 (ERISA), which provides the regulatory guidance for retirement plans.
Plan administrators may engage service providers to help them navigate the ERISA landscape and to ensure they are operating the plan in accordance with the plan document and ERISA. However, this does not absolve them of their own fiduciary obligations.
During November and December, many companies are finalizing annual budgets and looking forward towards year-end reporting. This is a great time to address some very important fiduciary responsibilities and implement monitoring activities associated with your plan.
Here are a few tasks to perform:
- If your plan is audited, request a meeting with the audit team to discuss best practice recommendations and any potential risk areas.
- Service provider relationships should be reviewed annually to ensure you are receiving the proper level of service relative to the fees charged. Litigation associated with excessive participant fees has increased significantly over the past several years.
- Plan administrators should review the plan document to ensure the plan is fully compliant. The following common areas of deficiency should be reviewed at least annually:
o Definition of compensation - Understand the plan’s definition of eligible compensation and review all pay codes to ensure they are properly included/excluded in the payroll system. Consider selecting a sample of individual employees to recalculate on a quarterly basis.
o Remittance of contributions - Contributions deducted from employee wages should be segregated from the company’s assets as soon as possible. They must be remitted to the plan on a consistent basis to avoid delinquent contributions. If this does not occur, they could qualify as prohibited transactions and require separate reporting on the Form 5500.
- The forfeiture account should be closely monitored and the funds should be used, if permitted by the plan document, to pay plan expenses and/or reduce future employer contributions.
Utilizing these best practices and implementing self-audit procedures will help identify potential trouble spots and allow management to proactively make required corrections or plan amendments. Fiduciary oversight and plan compliance are both very important areas that must not be overlooked.