While often associated with taxes and financial statements, CPAs play a critical role in the health and compliance of the company 401(k) plan. Accountants act as financial watchdogs, auditors, and advisors, ensuring everything from accurate contribution reporting to robust internal controls, and helping sponsors avoid costly oversights. Accounting expertise isn’t just about finding errors; it’s about building efficient, legally sound processes that safeguard your ERISA plan. Read on for practical advice from accountants.
Precision and Vigilance
As a retirement plan sponsor, you carry a significant responsibility – not just for your employees’ financial futures, but also for navigating a complex web of regulations. It’s a role that demands precision and vigilance—and those are skills Certified Public Accountants (CPAs) have in spades. Acknowledging that “A 401(k) plan is one of the best options available to help employees save for retirement,” CPAs at Smith Schafer underscore the seriousness of the plan management responsibilities associated with sponsoring a 401k: “As fiduciaries, you are responsible for the best interest of plan participants. The plan should have an oversight group that meets regularly to review plan features, monitor service providers, discuss investment options, and review processes related to the plan. Minutes of these meetings should be documented and maintained with other audit documentation.”
Though it’s wise for retirement plan sponsors to secure third party service providers for the 401k, Smith Schafer urge sponsors to avoid over-reliance on service providers, given that sponsors retain their inherent fiduciary obligations: “Plan management and/or trustees are required to monitor the management and performance of all service providers with which the plan has contracted. Plan management and/or trustees should make sure all responsibilities in all areas of the plan are clearly understood and stated between the plan fiduciaries and the plan service providers.” Specific aspects of plan operations that CPAs at Smith Schafer encourage plan sponsors to double down around include:
- Plan Effectiveness
It is important to educate your employees on the benefits and provisions of the plan. Knowing all of the options makes it easier for employees to enroll in the plan and subsequently increase their savings amount.
- Personnel Files
…Plan management should ensure these files are complete, including hire and termination date, pay rates, loan and hardship withdrawal support, and any other important benefit elections. Files should also be clean, organized, and consistent in order to ensure documentation is maintained to be in compliance with the plan document and all participants are treated consistently.
- Investment Policy Statement
Your plan should maintain a written investment policy statement. This statement provides the general investment goals and objectives of the plan and describes the strategies the investment manager should employ to meet these objectives.
- Discretionary Contributions
Plan management should document any discussions and eventual decisions regarding discretionary employer contributions to the plan. Generally, this issue should be addressed annually.
ERISA Fidelity Bond?
Accountants and attorneys also urge retirement plan sponsors not to neglect this essential obligation: obtaining, and maintaining an ERISA Fidelity Bond. Indeed, the Employee Retirement Income Security Act (“ERISA”) specifically requires the sponsors of tax-qualified retirement plans to obtain fidelity bonds, which are typically referred to as ERISA bonds. The purpose of ERISA Bonds is to protect the plan: “An ERISA Bond is a type of insurance that protects a plan against losses caused by acts of fraud or dishonesty. Fraud or dishonesty includes, but is not limited to, larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion, willful misapplication, and other acts….” CPAs at Smith Schager offer these pointers on ERISA Bonds:
The Department of Labor requires those who handle retirement plan funds must be covered by a fidelity bond. This is not the same as the plan sponsor’s crime or D&O policy. The fidelity bond covering the plan must specifically name the plan as a covered party, cannot have a deductible, and must cover at least 10 percent of plan assets (with a maximum of $500,000 of coverage). The bond must also be issued by an authorized surety company.
Colonial Surety Company, a leading, national and Treasury-listed bond writer, makes obtaining and renewing an ERISA Fidelity Bond fast and easy for retirement plan sponsors. Importantly, since the bond protects the plan, not the sponsor, Colonial Surety Company also makes it affordable and efficient for plan sponsors to add on Fiduciary Liability Insurance for their personal protection against the high standards of ERISA.
Fiduciary Liability Insurance has become a best practice for retirement plan sponsors. Even with extreme diligence, mistakes are likely to occur, and when they do, defense against ERISA investigations and allegations is costly, averaging upwards of $600 per hour. Examples of what plan sponsors can be held personally liable for include:
- Compliance: Do operations adhere to the plan document, and government regulations? Are you up to date with all cybersecurity protocols?
- Decisions: Do you have the right advisor, and investment options?
- Cost control: Are the plan fees reasonable and services solid? Have you monitored?
- Cybersecurity: Are you adequately mitigating threats to the plan, and ensuring all service providers have strong protocols in place too?
If you face claims that you have failed in your responsibilities as a retirement plan sponsor, the only type of protection that shields you personally is Fiduciary Liability Insurance. Colonial Surety Company offers an efficient and affordable Fiduciary+Cyber Liability Insurance bundle. For an annual fee that’s less than just one hour with a defense attorney if trouble strikes, you’ll be armed with:
- $1,000,000 for Defense and Penalties if you are faced with alleged or actual breaches of fiduciary duty.
- Cybersecurity Coverage for the business and plan, which addresses Department of Labor recommendations, and includes expert response services to curtail damage after an incident.
Get protected now: Fiduciary+ Cyber Liability Insurance
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