Managing a company retirement plan can bring many challenges. From meeting compliance deadlines to tracking investment performance and fee reasonableness, it can feel like your head is spinning out of control. Throw in the steady increase in lawsuits over the last decade, the burden can cause unwanted stress and chaos for plan sponsors.
So let’s examine the Top 3 Retirement Plan Headaches:
In 2017, there were 307 criminal investigations closed for offenses that were related to employee benefits plans. Nearly a third of those individuals were indicted. In the current litigation environment, nearly any plan is subject to a fee claim.
ERISA class action settlements reached nearly $1 billion in 2017. As fiduciaries, plan sponsors are encouraged more than ever to regularly review their plan governance to protect themselves and any corporate liability. Despite the lawsuits and sizable settlements, there are successful cases where plan sponsors were able to demonstrate the procedures they had in place that helped them hold up in court. Emphasis on the word “demonstrate”. It is not enough to have a procedure, you must also be able to demonstrate you understand it and have implemented it.
The Top Two Risk Mitigators were:
- Establishing a prudent fiduciary process
- Plan documentation
These are important to keep in my mind when evaluating your company retirement plan and how your fiduciary process would potentially hold up in a court of law.
2. DOL Audit Failures
Typically, DOL audits are not random and very little notice is given. If faced with an audit, the DOL will ask the plan sponsor to provide a number of important documents. These include the signed plan document, summary plan description, annual Form 5500 filings, summary annual reports, plan committee meeting minutes, and more. Establishing a documentation process is extremely important and should be intuitive and simple in the event that DOL reviews your company retirement plan.
DOL audits can go back as far as 6 years, which is the statute of limitations. Therefore, the processes you, as a plan sponsor, put in place today will impact your plan for years to come. A good reflection would be to ask yourself, if the DOL audited your retirement plan from six years ago, how would your procedures and documentation do under the microscope?
No plan sponsor or retirement plan committee wants to hear the DOL tell them they failed their audit and are subject to a sizable fine. The number of DOL civil investigations in 2017 rose to 1,114, totaling in recoveries of $682.3 million.
In order for you to avoid DOL audits, you need to know what typically causes them.
Some of the Most Common Reasons are:
- Participant complaints
- Curious/suspicious figures within the Form 5500
- Referral from other agencies
- Prohibited transactions
- An improper auditing report from a plan’s auditor
3. Missing a Compliance Deadline
Managing a retirement plan has many moving pieces from documentation to depositing employee deferrals. Missing a compliance deadline can be very costly if the mistake is not caught in time. In fact, filing a 5500-series return late can be up to $25 a day and a pricey maximum of $15,000.
However, the DOL and IRS do offer options for filing that are anticipated to be late or are behind schedule. You can file for an optional two-and-a-half-month extension to their original filing deadline.
Some of the Top Compliance Issues Plan Sponsors Face are:
- Form 5500/audit neglect
- ADP/ACP testing
- Process refunds
- Employer contribution calculations and allocations
- Depositing employee deferrals
Identifying and planning for potential lawsuits, DOL audit failures and missing a compliance deadline actually will bring you a step closer to avoiding them altogether. Establishing internal processes for your company retirement plan and having an accountability system that enforces deadlines will alleviate some major stressors and allow you to sleep better at night.