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

Miss the April 30, 2016 PPA Restatement Deadline? Use Plan B.

canstockphoto6581040The deadline for restating a 401(k), profit sharing, or money purchase pension plan to a pre-approved Pension Protection Act document has come and gone. So what’s a fiduciary to do? It was, after all, a responsibility of the plan fiduciary to ensure that the plan was updated and signed by the April 30, 2016 deadline.

However, there is a Plan B to avoid plan disqualification. The Internal Revenue Service (“IRS”), of course, doesn’t call it that. The proper term is IRS’ EPCRS Late Amender Program. “EPCRS” stands for the IRS’ Employee Plans Compliance Resolution System which provides a method for plan sponsors to correct failures and get their plans back into compliance.

In brief, here’s how the voluntary correction procedure for non-amenders works:

  • Plan sponsors would adopt the restated plan and then submit the required paper work to the IRS for approval.
  • The fee for the submission is based on the number of plan participants.
  • However, if the document failure is corrected and the filing is submitted within one year of the restatement deadline (no later than April 30, 2017) the submission fee is reduced by 50%.

You may be wondering if there is a Plan B, is there also a Plan C. Not exactly, and it’s certainly not voluntary. It’s the consequence of not taking advantage of the afore-mentioned Late Amender Program.

It’s the IRS’ Audit Agreement Closing Program (“Audit CAP”) which is the end result of a plan audit. If the IRS finds the plan to be non-compliant, the plan sponsor would be required to submit an updated plan to avoid disqualification. The cost of which would be significantly more than if the missed deadline was dealt with on a voluntary basis.

The takeaway should be obvious: Contact them before they contact you.

Photo credit: CanStockPhoto.

Does your group health booklet measure up to ERISA?

Tape MeasureIf your employer provides group health coverage, you should have received a detailed booklet, usually prepared by an insurance company that describes your coverage. The booklet is a formidable document that describes your group health benefits and the applicable limitations and restrictions on coverage in great detail.

The ERISA Requirements

But does this booklet measure up to the ERISA requirements? In many cases that answer is “No”, and here’s maybe why:

Plan Document

First, a typical insurance company booklet, or “certificate of coverage,” describes the provisions of an insurance policy. However, this booklet may not contain all of the legally required provisions for a group health plan document. These additional required provisions include a description of the classes of employees who are eligible for coverage, the identification of the plan’s “named fiduciary” and other parties responsible for plan administration, and the procedures for amending or terminating the plan.

Summary Plan Description

Many of these same provisions must be included in the group health plan’s summary plan description, or “SPD.”  The SPD is required to summarize all significant provisions of the plan in simple to understand language.  So, a compliant SPD is required to disclosure 26 separate items including the plan benefits and eligibility requirements, the allocation of any plan costs to covered employees, any circumstances that could result in a loss of benefits, a statement with ERISA rights, disclosure of the plan’s three digit identification number, and the persons responsible for the operation of the plan.

Who’s Responsible?

The insurance company is not responsible for preparing a complete plan document or providing a compliant SPD. Those responsibilities fall on the “Plan Administrator” and that typically is the employer – not the insurance company or contract administrator.


Here are three takeaways to consider:

First, documents containing the provisions required by law can be adopted to supplement the group health booklet. These documents, sometimes called “wrap documents” because they wrap around the plan booklet, can be distributed to participants along with the plan booklet to satisfy applicable disclosure requirements. A wrap document does not necessarily have to be complex because many of the required provisions consist of identifying information as to those individuals who operate the plan and basic plan procedures.

Second, in the event of an audit of your group health plan by the Department of Labor, the first two documents on the audit checklist are: (1) the plan document, and (2) the summary plan description. A failure to have these documents can expose the employer to liability for plan benefits otherwise provided through group insurance (see Silva v. Metropolitan Life, a 2014 decision of the 8th U.S. Circuit Court of Appeals). Also, statutory penalties for non-compliance can apply even if no plan participant is harmed by the lack of an SPD (see cases like Amschwand v. Spherion Corp., a 2006 federal decision).

Finally, for employers that now use the Affordable Care Act (ACA) “look back” rule to identify “full-time” employees who are eligible for group health coverage, a description of how that rule is applied also should be disclosed in the group health plan documents.

About the Author: Andrew S. Williams has practiced in the employee benefits and ERISA arena since ERISA was passed in 1974. He has been recognized by his peers through a survey conducted by Leading Lawyers Network as among the top 5 percent of Illinois lawyers in Small, Closely and Privately Held Business Law and Employee Benefit Law. He maintains a website, Benefits Law Group of Chicago, with additional updates, commentary and analysis on benefits and employment topics.

The above material is intended for general information purposes and should not be relied on or construed as professional advice. Under the applicable Illinois Rules of Professional Conduct, the contents of this e-mail may be considered to be attorney advertising. The transmission of this information is not intended to create, and receipt of it does not create a lawyer-client relationship.

Picture Credit: Connie Posites via Flickr.