How well do the actual operations of the company sponsored retirement plan match the procedures spelled out in the plan document? Are the operations also in compliance with what even experts say are “increasingly complex qualification requirements and moving deadlines”? Here’s advice about ensuring a happy ending in 2023.
There is a little good news for plan sponsors as the year ends: “there are no mandatory plan amendments due this year.” Nonetheless, Groom Law Group reminds us: “Plan sponsors must remain diligent about discretionary amendment deadlines, operational compliance with changes in law, and ensuring later-adopted plan amendments accurately reflect plan operations.” Specifically, these four actions should top the to do list for plan sponsors as the year winds down:
Review and Amend Plan Documents. Review and amend plan documents to ensure they timely reflect all discretionary plan changes (including design changes that became effective during the year or, in some cases, will become effective next year).
Review Plan Operations. Review plan operations to determine whether conforming plan amendments may be required and to ensure that changes in law are timely implemented.
Consider EPCRS for Any Plan Amendment or Operational Compliance Issues. If the plan document and operational review indicates potential non-compliance, talk to counsel to evaluate possible corrective measures in accordance with the Employee
Plans Compliance Resolution System (“EPCRS”). The newly-expanded EPCRS allows an indefinite self-correction period for all “eligible inadvertent errors….”
Consider Eligibility for IRS Determination Letter. Consider seeking an IRS determination letter for any new individually-designed 401(a) plan, or an updated determination letter for plan changes related to certain merger and acquisition activity or plan terminations.
The end of year is also an important time to check that your ERISA Fidelity Bond is up to date and in compliance with Department of Labor standards. Keep in mind, however, that neither the bond, nor diligent effort in the administration of an employer sponsored plan, provide protection in the face of a fiduciary breach: only Fiduciary Liability Insurance does.
Armed with Fiduciary Liability coverage from Colonial Surety, for a few dollars a day, you’ll have defense costs and penalty limits up to $1,000,000 if faced with alleged or actual breaches of duty in connection with the employee retirement plan. Cyber Liability coverage is included at no extra cost, providing additional protection–for the plan and your company–against regulatory actions related to data and privacy, as well as expert response services.
Recognizing that employees are struggling with the cost of living and losing the battle to save for secure retirement, many employers are exploring new plan strategies and raising employer contributions. Before finalizing changes to the plan, sponsors are reminded to: “consider whether future plan changes may require a prospective amendment and stay in front of changes that may require advance notice to participants and changes to service-provider agreements and related fees.” Additionally, Groom Law Group advises:
In addition to the above, plan sponsors should confirm that legally-required participant notices (e.g., 401(k) safe harbor notices, QDIA/automatic enrollment notices, fee disclosures) are compliant in form and are being provided by the applicable deadlines using the appropriate delivery method. Plan sponsors should also review participant communications, and remember to provide an updated summary plan description (or summary of material modifications) for any material plan changes within 210 days after the end of the plan year in which the changes are adopted.
While working to ensure compliance, plan sponsors should also keep in mind that the Department of Labor’s Employee Benefits Administration (EBSA) regularly pursues violations of ERISA. Civil corrections, litigation and even criminal indictments are all possible under the high standards of ERISA. The Department of Labor provides these examples of civil violations related to pension plans:
- Failing to operate the plan prudently and for the exclusive benefit of participants;
- Using plan assets to benefit certain related parties to the plan, including the plan administrator, the plan sponsor, and parties related to these individuals;
- Failing to properly value plan assets at their current fair market value, or to hold plan assets in trust;
- Failing to follow the terms of the plan (unless inconsistent with ERISA);
- Failing to properly select and monitor service providers;
- Taking any adverse action against an individual for exercising his or her rights under the plan (e.g., being fired, fined, or otherwise being discriminated against);
To help plan fiduciaries avoid problems, EBSA offers a variety of Compliance Assistance resources, including periodic webinars and educational materials, such as:
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