EisnerAmper Blog

The Compensation and Benefits Blog

Where Are Your 401(k) Plan Documents?

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July 9, 2014

By Denise Finney, CPA

Finney_DeniseIf someone asked you, as one of those involved with management of your company’s defined contribution plan, to provide a copy of the 401(k) plan document and related amendments, would you know where to find them?  All too often plan sponsors are unable to locate the current version of their 401(k) plan documents and amendments.   Frantically, they scour their files, emails and folders for the documents, only to find multiple versions of what looks to be similar documents which are unsigned and therefore lacking formal execution.  In other instances, the plan sponsor will even be unable to secure a signed and executed version from the company who assisted them with the implementation of the plan.

As a plan sponsor, it is paramount to maintain a complete copy of the signed plan documents and all related amendments for all of your defined contribution and defined benefit plans.  A common mistake observed by the Internal Revenue Service is unsigned plan documents, which can lead to penalties being accessed on the plan sponsor. Thankfully there are ways to fix this mistake, so avoid delay!  The time to determine if you have all of your plan’s documents is now. 

Are You Sure Your Plan Sponsor is Tax-Exempt?

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June 4, 2014

Wasser_DianeBy Diane M. Wasser, CPA

Do you sponsor a 403(b) plan?  If so, you’d better be sure the employer organization is (still) a tax exempt organization or a 501(c)(3).  A not-for-profit organization must file the appropriate Form 990 series (“Return of Organization Exempt from Income Tax”) at least once within a consecutive three-year period.  Without such filing, the IRS automatically revokes the employer’s tax-exempt status. Federal tax-exempt status can be reinstated if the organization applies to the IRS and is able to show there was reasonable cause for not timely filing the Form 990 series.  Here is an excerpt from the Form 990 instructions:

Automatic revocation for nonfiling for three consecutive years. The law requires most tax-exempt organizations, other than churches, to file an annual Form 990, 990-EZ, or 990-PF with the IRS, or to submit a Form 990-N e-Postcard to the IRS. If an organization fails to file an annual return or submit a notice as required for three consecutive years, its tax-exempt status is automatically revoked on and after the due date for filing its third annual return or notice. Organizations that lose their tax-exempt status may need to file income tax returns and pay income tax, but may apply for reinstatement of exemption.

What Is a Wrap Plan and Why Should I Care?

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May 15, 2014 
Faris, ChristineBy Christine Faris, JD

Your company may be familiar with Employee Retirement Income Security Act (ERISA) of 1974 as it relates to 401(k) and other retirement plans, but may not be aware that ERISA also applies to other types of benefit plans.  Employee welfare benefit plans, such as medical, dental, life insurance, etc. are also subject to the requirements of ERISA.  As with retirement plans, ERISA requires each benefit plan have a written plan document that contains specific elements, and that a summary plan description (SPD) for each benefit plan be provided to each participant in that plan.  (The insurance contract or policy for the benefit does not meet ERISA’s requirements of a plan document and SPD.)  Assuming the insurance contract or policy is sufficient for purposes of ERISA may expose  the company and plan’s fiduciaries to unnecessary risk.  In addition, ERISA requires the company to file an annual Form 5500 for each benefit plan.  The more benefit plans a company offers, the more plan documents and DOL requirements it will have.

A simple method to improve legal compliance with ERISA and minimize administrative responsibilities is to combine the individual benefit plans under a wrap plan.   Wrap plans are legal documents that combine all group insurance policies and contracts of a plan sponsor into a single plan and contain pertinent provisions required by ERISA. Adoption of a wrap plan means that your company is only required to file one Form 5500, rather than multiple forms for each welfare benefit.  A significant advantage of the wrap plan is that it reduces administrative costs by reducing the number of Forms 5500 that must be filed, and consequently reduces the risk of a late or missed filing and the associated penalties. 

DOL has informally indicated that it will be looking for Forms 5500 for welfare benefit plans for companies that filed a Form 5500 for a retirement plan with more than 100 participants.  As a result, it is more critical than ever for companies to review their plan documents and Form 5500 filing requirements to ensure ERISA’s requirements are met.

Sound interesting? Read “Wrap Plan Document for Welfare Plans”  to find out what you need to know regarding wrap plan documents.


Defined Benefit Plan Hidden Risks

(Defined Benefit Plans) Permanent link

April 28, 2014

Wuensch,JenniferBy Jennifer Wuensch, CPA

There are various risks that come with sponsoring a defined benefit plan, including market volatility and liability risk. There are also operational risks which can result in operational defects, inaccurate data and miscalculated benefit obligations.

Most plan operations are outsourced to third-party service providers and with this significant outsourcing, plan governance and internal controls are often ignored. Third-party service providers take away the stress of day-to-day plan management, but plan sponsors cannot outsource ultimate responsibility for the plan and its operations. Most problems and defects in plan operations occur from lack of oversight and lack of attention to governing documents and service agreements. Plan sponsors should make every effort to understand plan provisions, limit reliance on third-party service providers, understand what data is necessary to be tracked and how benefits are calculated, assure actuaries have accurate data, and manage data transfers. The accuracy and validity of the actuarial analysis is dependent upon the quality of the data used. Actuaries use professional judgment when determining whether and how to refine data or make modifications within the analysis based upon the accuracy of the data.

For plan sponsors to focus on reducing risk in plan governance, it’s imperative that plan records are available, organized, accurate, and complete. Complete records should contain all participants as well as all demographic and benefit-specific provisions needed to determine eligibility, vesting, and ultimate benefits due.  The plan sponsor should maintain an executed version of the current plan document, all plan amendments, and current service agreements with third-party service providers.

Plan sponsors will greatly benefit from a “self-audit” to review different aspects of their plan to ensure that they are operating in accordance with the plan document. In a self-audit, plan sponsors or accountants/third parties review the overall policies and procedures of the plan compared to the plan document, test overall plan activity, and spot-check specific transactions. By performing a self-audit, plan sponsors can be proactive regarding any errors and confident in the accuracy of obligations, and prepare themselves appropriately for an IRS or DOL investigation. A self-audit can include assessing the accuracy and completeness of actuarial census data, recalculating a sample of benefit payments, and analyzing a selection of specific participants from the actuarial census to determine the accuracy of demographic data, annual compensation, location, position, and union status.

These steps serve to assist plan sponsors in reducing the risks that accompany plan sponsorship.


Employee Benefit Plan Oversight

(Defined Contribution Plans) Permanent link

April 2, 2014

Wasser_DianeBy Diane M. Wasser, CPA

My sense has always been that there are plan sponsors that do not fully understand their fiduciary responsibility for their employee benefit plans. That concerns me. People who are charged with the responsibility to administer an employee benefit plan that is subject to ERISA face consequences that can affect them personally, so they should act with great care.

Through ERISA, the Department of Labor (“DOL”) and the Internal Revenue Service (“IRS”) have authority to issue regulations for employee benefit plans.  The DOL has primary responsibility for reporting, disclosure, and fiduciary requirements; the IRS has primary responsibility for participation, vesting, and funding issues; AND the DOL may intervene in any matters that materially affect the rights of participants, regardless of primary responsibility. 

Both the IRS and DOL have many ways they oversee plans.  One method employed by the IRS is comparing the employer’s contribution to its defined contribution plan (as reported on the Plan’s Form 5500), to the amount deducted on the company’s Form 1120.  Inquiries will take place for differences and employers will be spending time and resources working to support their filings.  In addition, the IRS actually focuses on internal controls in its audits of plans, especially for large plans with 2,500 or more participants.  Internal control is often misunderstood by plan sponsors because they consider the plan’s transaction processing to be an outsourced function for which they are not responsible. Frankly, that is completely wrong.  Plan sponsors are ultimately responsible, even for outsourced activities.  In addition, the DOL examines Form 5500 data and, now that all filings are electronic, the DOL has the ability to run checks and balances on numbers and search for key words, all quickly and efficiently.  My hope is that employers start taking plan sponsorship more seriously.  Maybe I am also being selfish since the more seriously plan sponsors consider their responsibility, the more they see the value of a quality employee benefit plan audit firm.


Time for Your Plan’s Checkup!

(Defined Contribution Plans) Permanent link

March 21, 2014

DeSaro_BrendaDeAngelo, KristeBy Kriste DeAngelo and Brenda DeSaro

Do you enjoy going to the doctor?  How do you think your 401(k) plan would do under the microscope of a routine checkup?  The employee benefit plan arena is changing frequently just like the health care industry.  Recently, Kriste DeAngelo and Brenda DeSaro wrote an article on assessing the financial wellness of your defined contribution plan, along with compliance areas and fiduciary responsibilities to be aware of. 

Furthermore, EisnerAmper LLP and Morgan, Lewis & Brockius LLP would like to invite you to a seminar titled “How Healthy is Your Defined Contribution Retirement Plan?” on Wednesday, April 23, 2014 at 8:30 am at the Philadelphia Marriott West, West Conshohocken, PA. You can register here


Roth Rollovers

(Defined Contribution Plans) Permanent link

February 17, 2014

Alwardt_PeterBy Peter Alwardt, CPA

Prior to 2013, employees were able to roll over 401(k) funds to a designated Roth account in the same plan only if the amounts were eligible for distribution. Beginning last year, plans may now allow rollovers of monies that would otherwise NOT be eligible for distribution. (You can read more about this here: IRS Provides Additional Guidance on In-Plan Roth Rollovers.) This allowance will require the plan to be amended to address these rollovers. Internal Revenue Notice 2013-74 extends the deadline for amendments to allow these rollovers to December 31, 2014, in general, but see the Notice for your specific type of plan.

There are certain restrictions related to how these rollovers are treated in the plan, so plan sponsors should seriously consider the level of utilization by participants before implementing the amendments. The additional administrative costs may outweigh the value of the provision.


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