Employee Benefit Plan Oversight
April 02, 2014
By 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.