In the complicated world of ERISA, a Fiduciary Checklist can help

canstockphoto9922413 complicatedChecklists. 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.

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403(b) plans looking a lot like 401(k) plans by making similar mistakes

venn of 403b and 401k-3403(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 Have Been Busy – Very Busy

compliance and regulationsBenefit 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:

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Inside the Cash Balance Plan Black Box

CC_BlackBoxProjectsIn 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.

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Pension Plans Continue to Enjoy Double Digit Annual Growth – Cash Balance Plans That Is

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.

Historical Background

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.

Now today:

  • 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.

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The cost of ERISA non-compliance just got more expensive

Rising-costs1 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:

  1. Mine Safety and Health Administration
  2. Occupational Safety and Health Administration
  3. Office of Workers’ Compensation Programs
  4. Wage and Hour Division
  5. 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.

Form 5500 filing due date almost here … but what about those welfare benefit plans?


The July 31 due date for filing Form 5500 with the Department of Labor (DOL) for calendar year retirement plans is rolling around very quickly unless extended. But what about those welfare benefit plans? Do they also have to file Form 5500?

As with all ERISA matters, it depends. Here are the basics in Q&A format. Continue Reading

401(k) Self-Directed Brokerage Accounts: A Cautionary Tale

caution4A recently filed lawsuit rekindled some old concerns about self-directed brokerage accounts. What are they? Let’s start at the beginning.

Self-Directed Brokerage Accounts or “SDBAs” is the name the retirement industry has given to individual participant brokerage accounts maintained either on a stand-alone basis or through the 401(k) provider handling the menu of funds.

The driving force is usually a business owner or an important executive with a large account balance who wants to go beyond the fund menu. And those participants have, as we say in Chicago, clout to make it part of the 401(k) plan.

The lawsuit in question is Fleming v Fidelity Management Trust Company which was filed by a group of participants in the Delta Airlines, Inc. retirement plan against Fidelity alleging breach of fiduciary responsibility for excessive fees charged to their brokerage accounts.

Excessive fees are always a concern. What makes SDBAs different – and there is no nice way to say it – are all the problems a participant can cause by making investment decisions that:

  1. Are not in accordance with the documents and instruments governing the Plans;
  2. Jeopardize the plan’s qualified status;
  3. Result in a prohibited transaction;
  4. Result in Unrelated Business Income Tax
  5. Cause a loan or distribution to be made from the plan;
  6. Make an investment in any property, the fair market value of which cannot be readily determined on a recognized market or otherwise requires an appraisal;
  7. Invest in tangible personal property characterized by the Internal Revenue Service as collectibles, other than U.S. Government or State issued gold and silver coins; and; or
  8. Cause the plan to not be in compliance with State or Federal securities laws and regulations.

A plan sponsor can build in all these “shall nots” in their Investment Policy Statement (assuming that they even have one) but sometimes participants do what they do. And that can keep a plan sponsor up at night.

Picture Credit: Jacquie1948 via Flickr