Or six non-alliterative reasons why waiting until the last minute to establish a retirement plan can be costly. And by last minute, I mean year-end. Continue Reading
Many 401(k) plan sponsors have wisely selected investment professionals to assist in selecting the plan’s investment menu, typically a listing of various mutual funds. Other plan sponsors may allocate this duty to company officers and other key employees.
Participant loans from 401(k) plans have never been an employer favorite plan provision. (See Now participant loans from 403(b) plans have come into focus. Continue Reading
Checklists. Doctors use them. Engineers use them, Pilots use them. A checklist is a tool to manage complicated jobs. Atul Gawande, MD, author of best seller, The Checklist Manifesto: How to Get Things Right, puts it this way:
Checklists not only offer the possibility of verification but also instill a kind of discipline of higher performance.
403(b) plans have come a long way since added to the Internal Revenue Code in 1958. The Internal Revenue Service (“IRS”) issued regulations governing the plans in 1964, and published a comprehensive revision that was effective January 1, 2009 that made major changes to 403(b) plans.
The effect of which was to lessen the difference with 401(k) plans. Continue Reading
Benefit plan regulators were active in the period leading up to the Federal government’s June 30 fiscal year-end. Significant new rules and regulations were proposed for retirement plans, deferred compensation plans and group health plans.
It’s not a walk on the wild side, but some of the dry regulatory pronouncements will impact most benefit plan sponsors and administrators. So, let’s get down in the weeds – here is the good news and the bad news:
In the world of science and engineering, a black box is a device, system or object which can be viewed solely in terms of its input and output without the user knowing how it works. In our ERISA world, a Cash Balance plan be a black box into which employer contributions are made on a tax deductible basis and benefits at some point are paid out.
So let’s take a peak inside the black box to help you better understand how a Cash Balance plan works so it could better accomplish your objectives. Here is a brief overview in Q & A format.
Cash Balance plans continue their impressive growth rate. Accordingly to the 2016 Cash Balance Research Report recently published by Kravitz, Inc., the number of new Cash Balance plans increased by 19% with assets increasing to $1 Trillion.
The actual number of Cash Balance Plan, 15,178, may not sound like much in the universe of approximately 700,000 retirement plans, but there were only were only 3,893 plans in 2006 when the Pension Protection Act of 2006 was passed which removed ambiguity about these plans.
- Cash Balance plans now make up 29% of all defined benefit plans, up from 2.9% in 2001.
- The 19% growth rate significantly outpaced the 2% growth rate of new 401(k) plans.
The Department of Labor (“DOL”) will be increasing penalties, in some cases substantially, for violations of ERISA. Here’s why and how it will impact ERISA plans that are not in compliance.
In 2015, Congress passed the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 as part of the Bipartisan Budget Act of 2015.
The new law directs federal agencies to adjust their civil monetary penalties for inflation every year limited to any penalty for a specific amount or maximum amount set by Federal law that is assessed or enforced by a Federal agency. In other words, Congress told the agencies to “catch-up”.
The new penalty amounts are applicable only to civil penalties assessed after August 1, 2016, for violations occurring after November 2, 2015, the date the 2015 Inflation Adjustment Act was enacted. Going forward, agencies are required to adjust their penalties for inflation before January 15 every year.
New Penalty Amounts
Five of the DOL’s agencies have penalties that are impacted:
- Mine Safety and Health Administration
- Occupational Safety and Health Administration
- Office of Workers’ Compensation Programs
- Wage and Hour Division
- Employee Benefit Security Administration
But for our purposes, we’ll focus on the Employee Benefit Security Administration (“EBSA”) which oversees ERISA for which 15 separate penalties have been increased. I’ll highlight just a few of the dramatic increases because of the catch-up.
- Section 502(c)(2), Failure to file Form 5500: $1,100 per day to $2,063 per day.
- Section 209(b), Failure to furnish certain reports to participants or failure to maintain records: $11 per participant to $28 per participant.
- 502(m), Improper distributions: $10,000 per distribution to $15,909 per distribution.
- 502(c)(4), Failure to furnish automatic contribution arrangement notice under Section 514(e)(3): $1,000 per day to $1,632 per day.
The DOL’s list of the new penalties for all of its agencies can be seen here.
The new schedule of penalties does not affect any penalties that may be assessed under the criminal provisions of ERISA.
Other penalties can apply for violation of other laws affecting employee benefit plans such as the Affordable Care Act (“ACA”), COBRA, and HIPAA.
First, the obvious one. Employers should establish a compliance program to monitor compliance with ERISA and other employee benefit laws.
Second, both the Department of Labor and the Internal Revenue Service have voluntary compliance programs that may mitigate any penalties. Don’t wait until until the plan is audited. It’s much more expensive that way.
Finally, yes, compliance with ERISA and the other laws can be both complicated and confusing. Ultimately, compliance is the responsibility of the plan sponsor and fiduciaries and not a third party.