As an employer, you are the Plan Sponsor. You sign the 5500.
- Are you certain that you are Department of Labor (DOL) compliant?
- Are you certain that you are carrying out your fiduciary duties?
- Could your company weather a possible complaint to the DOL?
The Department of Labor and IRS are increasing their audits.
The average DOL audit resulted in more than $18,000 in fines plus time involved. DOL penalties can include:
- Failure to file an annual report (form 5500): Up to $2,194 per day
- Failure to provide a 401(k) plan automatic contribution arrangement notice: Up to $1,736 per day
- For 401(k) plans, failure to provide blackout notice or notice of right to divest employer securities: Up to $139 per day
Employers are held to a high standard of care and diligence and must perform their duties solely in the interest of the plan participants and their beneficiaries.
The Employee Retirement Income Security Act (ERISA) requires employers to follow certain rules in managing 401(k) plans. Employers must:
- Establish a prudent process for selecting investment options and service providers
- Ensure that fees paid to service providers and other expenses of the plan are reasonable in light of the level and quality of services provided
- Select investment options that are prudent and adequately diversified
- Disclose plan, investment and fee information to participants to make informed decisions regarding their investment options under the plan
- Monitor investment options and service providers once selected to make sure that they continue to be appropriate choices.
Some of the questions employers must ask themselves to ensure that they are meeting their fiduciary obligations are:
- Does the plan design reflect changes in the workforce and in management since it was established?
- Are the investment options offered appropriate?
- Do I have all available documentation about the investment options under our plan AND the fees charged to my plan?
- What types of investment education are available under our plan?
- If administration services are paid separately from investment management fees, are they paid for by the plan, the company or both?
- Are the investment options tracking an established market index?
- Do any of the investment options under our plan include sales charges (such as loads or commissions)?
- Do any of the investment options under our plan include any fees related to specific investments, such as 12-b1 fees, insurance charges or surrender fees, and what do they cover?
- Are the fees charged to our plan reasonable in light of the level and quality of services provided?
For your Plan Administration, are you certain that:
- Your plan fees are “reasonable and necessary”?
- You are aware of the difference between a 3(21) or 3(38) Fiduciary?
- Your bond coverage is sufficient?
- Employee contributions are being deposited within the acceptable time frame?
- Your 401(k) Committee is serving the participants of the plan?
- Your adoption agreement is up to date and reflects your goals for the plan?
- Your employees are receiving the required communication and education?
- Your 5500 is complete, accurate and submitted on time?
For your Investment Options, are you certain that:
- Your Investment Policy Statement is comprehensive and satisfies regulations?
- You provide sufficient access to a broad range of asset classes?
- Performance is comparable to peers?
- Costs are comparable to peers?
- Total cost of popular target date funds are understood?
- That the investment options have recently been benchmarked?
Too often we see retirement plans that are generic, neglect to address evolving goals and regulatory requirements, are not properly serviced and don’t take necessary care of the participants. It’s critical to make sure that your company’s sponsored retirement plan is taking care of your employees and not putting you or your company at risk.
N. Gregory Spryn, CFP® is a senior vice president of Old Point Trust. His Old Point Trust 401(k) Advisory Team works with businesses throughout Hampton Roads to ensure they are carrying out their fiduciary responsibilities. Contact Spryn for a complimentary Benchmark Analysis. He can be reached at 757-722-5803 or firstname.lastname@example.org. Website is OldPointTrust.com.