With the number of employee benefit plans growing to more than 500,000 plans covering 50 million people, there have been increases in plan failures. The Department of Labor (DOL) has stepped up its enforcement activities dramatically looking for prohibited transactions, delinquent remittances of 403(b) employee contributions and other ERISA non-compliance. As the Plan Sponsor, you have a fiduciary responsibility to perform certain actions that involve specific responsibilities. The basic responsibilities that are most often not performed include:
- No employee benefit plan committee
- No minutes or documentation related to key plan sponsor decisions
- Lack of investment policy
- No documentation of oversight or review of outsourced services provided (e.g. TPA or payroll)
- The plan sponsor does not review the SOC 1 Report (formerly SAS 70 Report)
- Failure to maintain fidelity bond requirements (e.g. no fidelity bond or did not meet minimum coverage)
In addition to the common fiduciary issues noted above, there have been many plan errors found in recent years. The top 10 common errors are as follows:
- Eligible Compensation: The Plan Sponsor misapplies the definition of compensation. For example, bonuses, manual checks, fringe benefits, severance pay, etc. are not properly included or excluded when calculating eligible compensation.
- Eligibility Requirements:
- Employees are allowed to contribute to the plan prior to becoming eligible.
- Employees are not given the opportunity to participate when they become eligible.
- The plan sponsor does not retain evidence that eligible employees are informed of their right to participate.
- Contributions: The plan sponsor entered incorrect client data causing the contributions to be remitted to the wrong participant account or the incorrect amount.
- Missing Data: The plan sponsor is missing payroll data such as employee change sheets or timecards.
- Forfeitures: The plan sponsor misapplies forfeitures or forfeitures are not allocated within the time frame as required.
- Distributions: The plan made unauthorized distributions. For example, the plan sponsor did not retain proper documentation for hardship distributions or the participant did not obtain a loan first where loans are permitted by the plan.
- Vesting: The plan sponsor did not apply the correct vesting period.
- Late Remittances: Employee 403(b) contributions and loan repayments to “small” plans must be deposited by plan sponsors no later than the seventh business day following the payroll date.
- Census: The plan sponsor has an incomplete census or the census does not reconcile with the payroll data.
- Plan Loans: Loans are not made in accordance with the plan document.
The DOL has increased the number of audits performed over the past few years in regards to public schools, colleges and universities and hospitals. The department has also brought in new agents to specialize in 403(b) audits. It is now more imperative than ever to ensure that Plan Sponsors are performing their fiduciary responsibilities and correcting plan errors in a timely manner.