Offering a retirement plan can be one of the most challenging, yet rewarding, decisions an employer can make. Employees, their beneficiaries, and the employer can benefit when a retirement plan is in place and they participate. However, administering a plan and managing its assets require certain actions and specific responsibilities. Employers need to understand some basic rules, specifically the Employee Retirement Income Security Act (ERISA) to meet their responsibilities as plan sponsors. ERISA sets standards of conduct for those who manage an employee benefit plan and its assets (called fiduciaries).

What are the essential elements of a plan?

Each plan has certain key elements. These include:

  • A written plan that describes the benefit structure and guides day-to-day operations;
  • A trust fund to hold the plan’s assets;
  • A recordkeeping system to track the flow of monies going to and from the retirement plan; and
  • Documents to provide plan information to employees participating in the plan and to the government.

Employers often hire outside professionals (sometimes called third-party service providers) or, if applicable, use an internal administrative committee or human resources department to manage some or all of a plan’s day-to-day operations. Indeed, there may be one or a number of officials with discretion over the plan. These are the plan’s fiduciaries.

Who is a fiduciary?

Many of the actions involved in operating a plan make the person or entity performing them a fiduciary. Using discretion in administering and managing a plan or controlling the plan’s assets makes that person a fiduciary to the extent of that discretion or control. Providing investment advice for a fee also makes someone a fiduciary. Thus, fiduciary status is based on the functions performed for the plan, not just a person’s title.

If a plan is set up through an insurance contract, the contract does not need to be held in trust. A plan must have at least one fiduciary (a person or entity) named in the written plan, or through a process described in the plan, as having control over the plan’s operation. The named fiduciary can be identified by office or by name. For some plans, it may be an administrative committee or a company’s board of directors.

A plan’s fiduciaries will ordinarily include the trustee, investment advisers, all individuals exercising discretion in the administration of the plan, all members of a plan’s administrative committee (if it has such a committee), and those who select committee officials. Attorneys, accountants, and actuaries generally are not fiduciaries when acting solely in their professional capacities. The key to determining whether an individual or an entity is a fiduciary is whether they are exercising discretion or control over the plan.

A number of decisions are not fiduciary actions but rather are business decisions made by the employer. For example, the decisions to establish a plan, determine the benefit package, include certain features in a plan, amend a plan, and terminate a plan are business decisions not governed by ERISA. When making these decisions, an employer is acting on behalf of its business, not the plan, and, therefore, is not a fiduciary. However, when an employer (or someone hired by the employer) takes steps to implement these decisions, that person is acting on behalf of the plan and, in carrying out these actions, maybe a fiduciary.

Meeting Your Fiduciary Responsibilities

Tips for Employers with Retirement Plans

Understanding fiduciary responsibilities are important for the security of a retirement plan and compliance with the law. The following tips may be a helpful starting point:

  • Have you identified your plan fiduciaries, and are they clear about the extent of their fiduciary responsibilities?
  • If participants make their own investment decisions, have you provided the plan and investment-related information participants need to make informed decisions about the management of their individual accounts?
  • Have you provided sufficient information for them to exercise control in making investment decisions?
  • Are you aware of the schedule to deposit participants’ contributions in the plan, and have you made sure it complies with the law?
  • If you are hiring third-party service providers, have you looked at a number of providers, given each potential provider the same information, and considered whether the fees are reasonable for the services provided?
  • Have you documented the hiring process?
  • Are you prepared to monitor your plan’s service providers?
  • Have you identified parties in interest to the plan and taken steps to monitor transactions with them?
  • Are you aware of the major exemptions under ERISA that permit transactions with parties in interest, especially those key for plan operations (such as hiring service providers and making plan loans to participants)?
  • Have you reviewed your plan document in light of current plan operations and made necessary updates?
  • After amending the plan, have you provided participants with an updated SPD or SMM?
  • Do those individuals handling plan funds or other plan property have a fidelity bond?

What help is available for Employers who make mistakes in operating a Plan?

The Department of Labor’s Voluntary Fiduciary Correction Program (VFCP) encourages employers to comply with ERISA by voluntarily self-correcting certain violations. The program covers 19 transactions, including failure to timely remit participant contributions and some prohibited transactions with parties in interest. The program includes a description of how to apply, as well as acceptable methods for correcting violations. In addition, the Department gives applicants immediate relief from payment of excise taxes under a class exemption. In addition, the Department’s Delinquent Filer Voluntary Compliance Program (DFVCP) assists late or non-filers of Form 5500 in coming up to date with corrected filings.

Reporting to the Government

Plan administrators generally are required to file a Form 5500 Annual Return/Report with the Federal Government. Form 5500 reports information about the plan and its operation to the U.S. Department of Labor, the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC). These disclosures are made available to participants and the public. Depending on the number and type of participants covered, the filing requirements vary. The form is filed and processed electronically under the ERISA Filing Acceptance System II (EFAST2). For more information on the forms, their instructions, and the filing requirements, see the EFAST2 website and request the publication Reporting and Disclosure Guide for Employee Benefit Plans. See the Resources section to obtain a copy. There are penalties for failing to file required reports and for failing to provide required information to participants.

For an overview of both programs, consult DOL’s website. For more information contact DMJPS.

Bill Jones, CPA, CPCU
Bill Jones, CPA, CPCU

As a member of DMJPS’ professional team, Bill specializes in DMJPS’ Employment Benefit Plan Services including the administration and government reporting for a variety of plans, as well as performing ERISA audits of the plan’s financial statements. In addition, Bill also focuses on nonprofit organizations and 990 preparation. He also has experience with individual and corporate tax.

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