And Who Can Provide These Services for Your Organization’s Retirement Plan?
When talking about retirement plans, the IRS defines a fiduciary, as “a person [or entity] who owes a duty of care and trust to another and must act primarily for the benefit of the other in a particular activity.” The IRS and the U.S. Department of Labor govern some retirement plans under the Employee Retirement Income Security Act (ERISA); however, even plans that are not governed by ERISA (most public schools and government plans) still have legally enforceable retirement plan administrative responsibilities. So, while these are not technically plan fiduciary responsibilities, plan sponsors should really be treating them as such because they may be held liable for these things if something goes wrong.
One of the best practices being used in the Governmental (public schools) and non-ERISA nonprofit worlds is to call these individuals a “governing Advisor”.
Surprised? Join the club. We could probably regale you with horror stories about plan sponsor employers who didn’t understand their legal obligations to their plan participants, both in the ERISA and non-ERISA world, but suffice to say that it isn’t pretty. PenServ has a full list of more than 75 tasks and administrative responsibilities in their plan documents for non-ERISA plans, for which plan sponsors are either held accountable or must outsource in order to meet these obligations. And even when choosing to outsource these tasks, a plan sponsor can still be held responsible if they choose the wrong vendor to perform that responsibility for the plan, so due diligence is a must when choosing vendors to outsource portions of the plan’s administration. Let’s take a look at some of these administrative responsibilities for which you, the plan sponsor, may be held accountable.
- Forfeitures and forfeiture restoration
When an employee terminates their employment, before they are fully vested in any matching contributions, what happens to the unvested portion of their balances? You need to decide and outline rules for this, or make sure that you’ve outsourced this function appropriately. And what happens if they are rehired? Are those forfeited portions of their plan restored?
- Providing the Universal Availability Notice to all Eligible Employees.
One of the 2 failures under a 403(b) that can “blow up” the plan, making all assets under the plan immediately taxable, is not providing to all eligible employees, a Universal Availability Notice (“UAN”). This notice must be provided annually to all eligible to defer under the 403(b). Many Employers provide this more than once a year to make sure new hires for example receive a copy of the UAN. Failure to not do this could be a disaster.
- Providing accurate plan census information for determining contribution limits and vesting.
If an employee begins their employment and the plan document states that they must become part of the plan within 30 days of their start date, who ensures that their personal information is added to your plan data file in a timely fashion? Is that same entity that is held liable for any discrepancies in the data? It should be. You’ll need to make sure that all the plan rules are followed when it comes to each and every employee’s data. If you’ve outsourced this, you’ll probably want some assurances that this is happening according to plan.
- Adopting a 2009 Plan document and then Restating by June 30, 2020.
These are the 2 steps that need to be done in order to obtain reliance on your Plan document as the Employer. Not maintaining a proper up to date plan document could provide penalties for the Employer upon an IRS audit, especially if the employer is not administering the plan the way that the document is/should be written.
- Not Monitoring/Correcting Excesses in the Plan
Assume a participant under the Plan has deferred from salary $25,000 into the plan. The participant is under age 50, so that $19,500 would be their maximum for 2021. There is no administrator for the Plan other than the Employer and the error is not caught. If the excess remains in the Plan and the Employer does not monitor these amounts, then when the participant is caught – and they will be (their W-2 will indicate the total amount deferred for the year), the IRS will charge your employee double in taxation. They must include in income the excess for the year of the excess and again for the year of the corrective distribution – that’s double taxation!
These are only a few of the responsibilities that must be considered when administering your employer-sponsored retirement plan, non-ERISA or ERISA. Of course, with ERISA governed plans, these requirements are stricter and much more detailed, but just because your retirement plan isn’t governed by ERISA, do not believe that this absolves you legally from adhering to the responsibilities of running a retirement plan for your employees. And by all means, get help from your partner vendors who specialize in running these plans. After all, it’s our literal job.
This article was written in collaboration with Susan D. Diehl QPA, CPC, ERPA, President, PenServ Plan Services, Inc.
Susan D. Diehl is a preeminent retirement plan and benefits expert. During her career Susan has served on renowned committees at the Internal Revenue Service (IRS) including the Advisory Committee on Tax Exempt and Government Entities (“ACT”), where she contributed to the formation of the IRS’ 403(b) Liaison Group that provides support to employers and financial institutions dealing with 403(b) plans. In addition, Susan has been appointed to and proudly participated in various committees at the Department of Labor (“DOL”) including the ERISA Advisory Council, and the Information Reporting Program Advisory Committee. As an authority on retirement plans, Susan continues to testify before the IRS and DOL on retirement plan regulatory issues. More…
TC121815(0721)1
