Employee benefit plan sponsors and fiduciaries must realize how important plan compliance and their fiduciary responsibilities are to their companies, employees and plan participants, says Sean Pierce, CPA, CCIFP, director of auditing services at Clarus Partners. The Department of Labor (DOL) and IRS are very serious about plan operations and that fiduciaries are running the plan in accordance with the plan document and complying with the law. He says companies that don’t have a formal compliance review should schedule one as soon as possible.
Smart Business spoke with Pierce about benefit plan reviews and the responsibilities of plan fiduciaries.
What is a company looking for when it reconciles participants and contributions?
Companies should have internal controls over their various employee benefit plans, specifically defined contribution 401(k), 403(b) and defined benefit pension plans. One of those controls should always include reconciling participant contributions to the plan on a per pay period basis. Without this simple control in place, companies could be forced to contribute additional funds in the form of lost earnings to participants for any possible late remittance. To the DOL, timely remittance means as soon as administratively possible.
What should a compliance check on a employee benefits plan fiduciary include?
Compliance checks should evaluate plans from a fiduciary responsibility standpoint. This should include hiring a qualified third-party administrator or investment adviser to manage some or all of the plan’s day-to-day operations.
Annual reviews or compliance checks of the plan would include reviewing the plan to determine if the goals of the plan are being met and fiduciaries are meeting their responsibilities. Also, the compliance check should include a review of the record keeping system to determine if the flow of monies to and from the plan are sufficient.
What should a company check into at the end of the year?
As part of their annual compliance checks, plan fiduciaries should be evaluating if they are acting in the interest of plan participants, following the plan document, and reviewing investment results and investment strategies. Fiduciaries should check to see that the plan is providing participants with the appropriate investment advice and education. Additionally, fiduciaries’ review should check to ensure that transactions occurring in the plan are not prohibited transactions, while also making sure plan expenses are reasonable.
If the benefit plan requires an audit, the fiduciary should determine if the plan auditor has enough experience to perform a quality audit. The DOL started reviewing auditors’ work papers and noted that in some cases a deficient audit was performed. In certain circumstances, if the DOL finds a plan had a deficient audit, the DOL can reject the 5500 filing and fine the plan sponsor up to $1,100 a day until the plan comes in to compliance.
What are some important dates to keep in mind when performing a year-end review?
Plan sponsors should know when the plan’s 5500 filing is due, which is seven months after the end of the plan year. The 5500 is eligible for an automatic two-and-a-half month extension.
Sponsors should make sure they make any plan amendments before the start of the plan year and give participants the appropriate notice of any plan changes. They should review their plan document for entry dates into the plan, and ensure that new participants are being given the opportunity to participate and the appropriate investment advice and education around the plan are provided. When the year-end review of the employee benefits plan is through, fiduciaries should have an understanding of any area of concerns or improvement, and an action plan to tackle any deficiencies.
All of the fiduciaries of the plan should be involved in a year-end benefits check. However, it’s best if fiduciaries meet more than once a year to review the operations of the plan. If fiduciaries are taking an active role during the year, the year-end review should not take much time.
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