401(k) contribution remittance: What’s an employer to do?

Originally posted March 19, 2014 by Kerri Norment on https://eba.benefitnews.com

Over the past several years the U.S. Department of Labor’s Employee Benefits Security Administration has identified delinquent employee contributions as an ongoing national policy priority. With assets in 401(k)-type plans reaching $2.8 trillion on behalf of more than 50 million active participants, protecting employee contributions has become more important for the government, particularly since employees have been forced to take more responsibility for their retirement savings.

On the other hand, employers and sponsors of 401(k) plans are responsible for ensuring plans comply with federal law. But ever-changing interpretations of government regulations have resulted in employers being out of compliance with certain rules and not even knowing it.

One particular regulation that has been a source of confusion for employers — and in some cases, has landed them in hot water with the DOL — is the timely deposit of employee contributions into 401(k) plans. The regulation states employers should remit employee contributions on the earliest date they can reasonably be segregated from the employer’s general assets, but no later than the 15th business day of the following month. While this has come to be known as the "15 day rule," the reality is that deposits — for small and large plans — are expected to be made much sooner.

In fact, the DOL issued an amendment to the regulation in January 2010 to create a safe harbor rule under which small plans — classified as plans with fewer than 100 participants — would be considered in compliance if employee contributions were deposited within seven business days. The DOL has not issued a similar safe harbor rule for large plans. However, most in the industry believe larger plans will be held to an equal, if not higher, standard, meaning deposits should be made within two to three business days.

If you are scratching your head on this one, you’re not alone. When the regulation was implemented, there were no automated payroll processing systems that allowed for contributions to be easily segregated from general assets. With advancements in technology, this process is essentially instantaneous. And because of it, the DOL has changed its expectations on remittance, despite not rewriting the rule.

So what’s an employer to do? The best advice is to be consistent. If an employer demonstrates the ability to remit contributions within one business day, the employer better make sure all remittances happen within one business day each pay period  — no exceptions! The second best advice, don’t rely on safe harbor rules to protect you.

If you find your plan is not in compliance with the new interpretation of the regulation, it is recommended you self-correct the plan. The DOL website provides a guide for correcting under the Voluntary Fiduciary Correction Program that even includes a user-friendly online calculator for lost earnings.

As in most cases, knowledge is power. Whether that knowledge is obtained through the use of a reputable service provider, consultant, or HR expert, employers and plan sponsors must stay on top of changes in government regulations and rules.


A Push for Retirement e-Communication

Industry groups are urging DOL to end paper disclosure requirement

By Brian M. Kalish
Source: eba.benefitnews.com

As new retirement fee disclosures go into effect this summer, a coalition of 15 retirement industry groups are urging the Department of Labor to allow broader use of electronic communication for retirement plan participant disclosures, which are now mailed in paper form to plan participants.

"It's just the way technology is going, you've got people of all ages using the Internet," says Brian Tate, VP, banking and securities at the Financial Services Roundtable, one of the agencies pushing for the changes. "We think it's just an effective way for our members to reach out with their customers."

 

The drive for e-disclosure

Disclosures are there to help plan participants properly plan for their retirement, but "paper is counter-productive to that," says Anne Kim, managing director for policy and strategy at the Progressive Policy Institute, a Washington-based progressive think tank. "Paper is static, it's outdated. If the government's goal is to really help people take charge of retirement, they are going in the wrong direction."

Judy Miller, director of retirement policy at ASPPA - another group advocating for the changes - says there are many reasons why this idea is so valuable, including that it is just easier to read information online and there are many more presentation tools that allow for simplification of sometimes complex information.

"There is an awful lot of paper going out already that is just getting trashed and it's a waste," she says. "There will be even more with the new disclosure rules kicking in, and depending on the nature of the investment, [people] will be getting, in some cases, a box of paper. And we don't think they will be reading it. We think it will be better if they were encouraged to go online where it's easier to drill down and get something out of it."

But, Miller stresses that the industry groups are not saying eliminate paper if a plan participant wants it, rather make it opt-in for paper, rather than opt-out. From a policy standpoint, using defaults such as automatic enrollment and default investments encourages good behavior, Miller says, with people getting more information out of information delivered electronically.

E-communication further allows access "anywhere, anytime, with the device of the user's choosing, and with a better filing system than paper notices," writes Ohio State University Law Professor Peter Swire, in a white paper, "Delivered ERISA Disclosure for Defined Contribution Plans."

That flexibility is important, Swire says, as with paper being stored in one place, "the lack of geographic flexibility can be an obstacle to examining documents and making investment decisions."

There is an additional cost savings involved, Swire says. While the preparation time to meet legal requirements would be the same, there is near zero marginal cost to send a few or a few million disclosures.

 

Will it happen?

The 15 trade associations pushing for the changes sent a letter to DOL at the end of March asking for the policy change, but have yet to receive an official response. "I think that the Department is aware of our concerns, but if you take a step back, you see more and more people, regardless of age, using the Internet and technology to communicate in a way that we couldn't think about five years ago," the Roundtable's Tate says.

Miller adds that while ASPPA is hoping that DOL will act, "we are, frankly, also talking with people on [Capitol] Hill. Because if DOL doesn't act, we are hoping Congress will give them a nudge."

It's inevitable, Kim says, that at some point DOL will change, but "it's a pity in the meantime that people are losing opportunities to take a more active role in managing their savings and getting access to the information they need while DOL sits on their hands.

"There's been enough interest on" moving to e-communication in government, such as IRS e-filing and paying parking tickets online. "The fact that DOL is behind will become so much more obvious," she says.

Tate says that in the end is it about the consumers as "we want to get the information to them as quick as possible. ... We do know they are working in a fast-paced environment ... let's try to make [this] as easy as we can."

Meanwhile, the DOL says in an e-mailed statement to EBA that it has "received a variety of letters on this issue in recent months and ... continue[s] to consider the issues raised in this letter and others that expressed differing perspectives and concerns. EBSA has not yet completed its broader evaluation of the current regulatory standards for the electronic distribution of disclosures required by ERISA, including the potential impacts on the rights and interests of plan participants and beneficiaries."

DOL says in the statement that in the interim, "the Department's current regulation and other guidance on electronic disclosures to participants and beneficiaries are available to plan administrators."

The letter to Phyllis C. Borzi, assistant secretary for the Employee Benefits Security Administration, is signed by 15 trade groups and Miller says that number is very helpful. "I think it's helpful for regulatory agencies when [they] don't have all of us coming in separately," she says. "When we can resolve our positions instead of ... telling them different stories."


Hotter Economy can Spark Retention Challenges

Although a recent report on U.S. job growth has left many observers disappointed, other economic signs are prompting employers to re-evaluate their benefits and retention strategies to avoid a potential talent exodus.

The Department of Labor reported that the nation added 120,000 jobs in March, down from the previous three months that saw 200,000 or more new jobs. Still, the stock market is up for the year, and U.S. employees appear to be more secure in their jobs. The Randstad employee confidence index -- which measures how confident workers feel about their job security and the economy -- rose in March to the highest level since October 2007, according to Workforce magazine.

An improving economy, however, has a dark side: Talented but unhappy employees will seek better opportunities elsewhere, experts say.

"There is a storm brewing," said Lynne Sarikas, executive director of the MBA Career Center at Northeastern University, in a recent Human Resource Executive online report. "Many people will be looking to make a change once they perceive improvement and stability in the job market. This will have a significant impact on their employers."

More movement in the job market can spur hotter competition among employers for good talent. In addition to competitive wages, robust employee benefits can help employers keep their best workers happy and productive -- and employers are taking notice. A recent study by MetLife found that 90 percent of companies say they don't plan to cut employee benefits in the near future, according to a report by CCH. A large majority (91 percent) of those polled expressed confidence that benefits work as retention tools.

While health, dental, vision and other stalwarts in the retention toolbox remain central to many companies' overall offerings, employers may want to consider additional choices to sweeten the benefits pot.

For instance, companies that want to pull in younger workers may want to investigate defined benefit (DB) retirement plans, according to new research. A recent study by Towers Watson, reported in PLANSPONSOR, noted that 63 percent of workers younger than 40 said in 2011 that they chose their current employer because it offered a DB plan, compared with only 28 percent in 2009.

Education benefits are paying off for some companies, as well. United Parcel Service is sponsoring a program that pays up to $3,000 per year in tuition reimbursement for part-time employees. Executives say the program has spawned talented leaders who have stuck with the company.

"Enhancing the skills and knowledge base for our employees is a fundamental element of our success, and correlates directly with our policy to promote from within," Susan Rosenberg, UPS public relations manager, told the Atlanta Journal-Constitution.