DOL cracks down on employer 401(k) issues

Originally posted March 31, 2014 by Scott Wooldridge on www.benefitspro.com

The press release headlines are sobering: “U.S. Labor Department files suit to remove trustees,” “Department of Labor files suit to recover unpaid contributions to 401(k) plan,” and “Judge orders trustees to restore losses.”

The Department of Labor website is overflowing with cases of regulators taking action against employers accused of mishandling employee benefit plans.

Among the most common cases: errors in administering 401(k) plans. Although Labor Department officials and experts in the ERISA field say the majority of cases are errors in reporting and do not result in civil lawsuits, the numbers of benefit plan cases investigated (of all kinds) are still impressive: the DOL closed 3,677 investigations in 2013, with nearly 73 percent of those resulting in monetary fines or other corrective action. Lawsuits were filed in 111 of those cases.

The department says it is working to educate employers about how to avoid errors, including conducting seminars and providing information on the DOL website.

In a March 21 blog post, Phyllis Borzi, assistant secretary of Labor for employee benefits security, noted that employers could find it challenging to administer benefits such as 401(K) plans.

“Most fiduciaries — people who have key responsibilities and obligations to an employee benefit plan — and employers want to do the right thing,” she said in the piece. “However, inadvertent mistakes can create significant problems for fiduciaries and participants.”

The problems can lead to substantial monetary fines and settlements.

In January, for example, the DOL announced that a Chicago-area manufacturing firm, Hico Flex Brass, would pay $79,000 to settle a case in which the company failed to properly distribute 401(k) earnings to employees.

A Jan. 10 complaint by the DOL asked the courts to rule that a machine shop in Santa Maria, Calif., should restore $58,000 in 401(k) contributions that the company improperly mixed with other business accounts.

For large companies, the costs are even higher.

A lawsuit brought by employees of International Paper resulted in a $30 million settlement in January, although that case was litigated by a law firm and not the DOL.

Even when the dollar figures aren’t as high, cases involving 401(k) administrative errors can hit small and medium-sized employers hard.

Lawyers who work on employee benefits cases say many employers don’t pay close enough attention to the complexities of administering retirement plans.

“It’s just difficult at times for employers to keep up and attend to all the details,” said John Nichols, an employment benefits lawyer with Minneapolis-based Gray Plant Mooty. “The rules are complex, and the administration of the plans is correspondingly complex.”

Plenty of room for error

“The reality is that running a benefit plan such as a 401(k) plan has a lot of room for error built into it,” said Stephen Rosenberg, an ERISA attorney with The McCormack Firm, based in Boston. “Many of these small and medium-sized companies are focused on running their business. They need to provide a 401(k) as an employee benefit but they don’t really have the internal resources to do this.”

Rosenberg said even large businesses often stumble with retirement plan administration. “Retirement plans, including 401(k) plans, are probably more regulated than anything in American economic life short of nuclear power plants,” he said. “It’s very difficult for any company not large enough to have a dedicated legal staff to hit every hurdle correctly.”

Nichols said that the DOL tends to investigate certain areas of plan administration pretty consistently. “You see a lot of similarity” of the cases, he noted. “One exercise (employers can consider) is to go down the list of typical cases and say, ‘How are we doing in each of these areas?’”

Common pitfalls

So what are the areas the DOL tends to investigate? The experts interviewed for this story agreed that there are several areas where problems may trigger a DOL investigation of employers.

One is failing to make a timely remittance to the 401(k) plan. Under federal rules, funds from an employee’s paycheck have to be submitted to their retirement account no more than 15 days after the money is withheld from the paycheck.

A second common issue is making sure employees get their statements in a timely manner. Proper disclosure of fees owed to the plan’s fiduciaries (the company in charge of administering the funds for the plan) is another area that DOL looks at closely. And some companies have been found noncompliant for failing to maintain fidelity bonds for their plans, a safeguard against misuse of funds.

“I do see companies who are loose about when they make deposits; they just treat it like the rest of the cash flow in the company,” said Rosenberg.

Avoiding costly mistakes

Rosenberg and Nichols said there are several steps employers can take to avoid trouble with DOL regulators.

They both said companies need to take their fiduciary responsibilities seriously, and not expect that a retirement plan will run itself. An important first step is keeping good records.

“If you have a committee that is responsible for the administration of the plan or its investments, make sure that they meet regularly and that you keep a good record of committee actions, what’s discussed, and how decisions are made,” Nichols said.

Getting help

Rosenberg said companies need to be realistic about whether they have the time, resources, and knowledge to administer and monitor retirement plans themselves.

“The key in many ways for smaller and midsized companies is really to find a very good outside consultant — and I don’t mean your vendor,” he said. “If you have a huge company you have a department to do this. If you’re not, bring in a consultant and outsource that role.”

Nichols agreed that the vendor — the financial services company that provides the investment plan — has a limited role. “Vendors are pretty good at allocating accounts and providing access to account information,” he said. “That doesn’t mean that the whole job is done. You didn’t get a totally turnkey product. There are things you need to do as well.”

Failing to watch, of course, could mean triggering a DOL action.

“There’s always a monitoring responsibility,” a DOL spokesperson said. “The criteria we use is, ‘You should have known. You might not have known, but you should have known.’”


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.


Compliance Alert – Exchange Notice

Two versions of a model exchange notice have been issued by the Department Of Labor which also include basic directions on the requirements of distributing this notice. The first notice pertains to employers who provide coverage, whereas the other notice is for employers who do not offer coverage. The deadline for administering these notices is October 1st, 2013.

Basic employer information is required for both notices. This information will provide data necessary for the employee if they decide to receive exchange coverage. However, the notice does not need to include state-specific information pertaining to the exchange. For your convenience, the links below offer instructions and information on the model notices; and we will keep you updated with more information next week or as this is updated.

Model Exchange Notice for Employers who provide coverage

Model Exchange Notice for Employers who do Not provide coverage

 

 

 


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."