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At WK, the answer is simple.
Posted On: 5-14-2015 | Posted By: WK Staff
Well-meaning companies that offer retirement plans to their employees have been hit with some significant fines after Department of Labor investigations revealed errors in the administration of the plans. In 2014, nearly 65% of the plans the DOL audited were fined or made to take corrective action, and in more than 100 cases, civil lawsuits were filed.
Penalties were levied even when the errors were inadvertent. A plan sponsor can be deemed to have mishandled plans even when errors are administrative in nature and no willful misconduct occurred.
Employee benefit plans with 100 or more eligible participants are subject by federal law to annual audits that are designed to reduce the risk of errors and protect the interests of the plan sponsor and participants. But what about small company plans with fewer than 100 eligible participants? Some employers engage a qualified auditor to test their plan for deficiencies so they can be corrected before the DOL, or an aggrieved employee, comes knocking. These voluntary “plan checkups” are a great way to reduce risk and offer some peace of mind.
The risk is real, and it can be personal
The impact of not complying with applicable rules is significant to the plan, the employer and the employee. If the plan is no longer deemed a “qualified” plan, it will result in changes to its financial statements and tax returns. The employer could lose the tax deduction for all contributions made to the plan and be subject to penalties. The employee could be subject to tax on all vested contributions.
And, anyone who serves as a plan fiduciary can have personal liability – you could be named in a lawsuit if you serve as a fiduciary and there are allegations that you failed your duty to serve the interest of the plan participants. Most fiduciaries want to do the right thing, but mistakes can have serious consequences.
Benefits of a plan checkup
Retirement plans of any kind are a great recruiting and retention tool, but keeping up with the complex rules for plan administration can be difficult for organization owners, managers or board members who don’t perform that work on a regular basis. A plan checkup performed by experienced auditors can help ensure your organization complies with all state and federal laws and regulations governing the plan.
Auditors can identify some compliance issues commonly encountered by plan sponsors. Examples of mistakes we commonly see include:
- the failure to timely remit deferred funds to the employee’s plan – by law, all amounts withheld from an employee’s paycheck should be submitted to the retirement account within a few days of the payroll date;
- overlooking the plan’s break-in-service rule, which specifies when a rehired employee is eligible to participate in a plan; and
- not following the plan’s definition of eligible compensation, a very common mistake.
A plan checkup usually takes the form of an agreed-upon procedure engagement, which means the auditor is engaged to perform specific procedures for a specific period of time and report the findings to the entity that commissions it. During our plan checkup engagements, we perform selected procedures that test for the most common compliance issues identified in our audits. If your company agrees to a plan checkup, your auditor will issue a report to the owners or board for consideration. This gives your organization a chance to correct problems quickly.
Is a plan checkup right for your organization?
The DOL says plan sponsors have a monitoring responsibility – maybe you didn’t know of an error, but you should have known. So, burying your head or claiming ignorance is not going to protect you. The best thing you can do is take an active, even proactive, interest in the administration of your organization’s benefit plan.
If you’d like to learn more about how plan checkups work, watch the video or contact Heidi Chick, CPA, at (573) 442-6171. Williams-Keepers LLC has a strong team of employee benefit team auditors who can put their years of experience to work for your organization.
Posted On: 3-11-2015 | Posted By: WK Staff
Offering a retirement or health benefit plan to your employees can be an important part of your company’s recruiting and retention effort. These are not “set it and forget it” plans, however. Employers should be aware of their ongoing responsibilities as required by the Employee Retirement Income Security Act (ERISA).
Who has fiduciary responsibility?
ERISA applies to all private sector plans, but not public sector plans or those sponsored by churches. Under the law, plan sponsors have a “fiduciary responsibility” to administer retirement and health plans in accordance with the plan document and applicable laws, to act solely in the interest of plan participants and to prudently manage and diversify the assets under the plan. Prudence focuses on the on-going process of making, monitoring and documenting fiduciary decisions and responsibilities. Fiduciaries who do not follow the standards may be personally liable for plan losses as a result of their actions or non-actions.
Who, specifically, has fiduciary responsibility? Although every ERISA plan must list at least one person or entity as its fiduciary, the fiduciary responsibility extends to anyone who makes decisions regarding plan administration or asset management. It might be an individual, an administrative committee, a board of directors, or any combination of those. Anyone who has discretion over the plan could be considered a fiduciary.
Fiduciary responsibility for investment monitoring
Prudently managing assets means continuously monitoring investments to ensure expenses are minimized and investment options are diversified, not just at the initial selection of investments. This will be emphasized if the U.S. Supreme Court finds for the plaintiffs in Tibble v. Edison. In the Tibble case, petitioners allege that the California-based Edison International should have replaced three mutual fund options with others that were almost identical and less expensive and there is an on-going breach of fiduciary responsibilities that doesn’t end. If the Court agrees, all retirement plans will have to regularly review their plans to ensure they are meeting fiduciary obligations.
Regardless of the outcome in the Tibble case, plan sponsors would be smart to do their due diligence in monitoring the plan administration and asset management.
The IRS released final Repair Regulations in September 2013 to provide guidance on which amounts paid for materials and supplies, for repairs and maintenance, and for purchases of assets can be expensed and which must be capitalized. The final Repair Regulations apply to tax years beginning on or after January 1, 2014.
Helpful Repair Regulation Resources
- CCH Tax Briefing: IRS Releases Comprehensive Repair/Capitalization Final Regulations
- CCH Tax Briefing: Analysis of Comprehensive Repair/Capitalization Regulations
- Slides: Capitalization of Tangible Assets
- AICPA Repair Regulations Q&A
- Accounting Policy for Capitalization of Tangible Property Expenditures
Previous Client Alerts
Many tax advisors believe the Repair Regulations are the most dramatic changes in tax law to affect for profit businesses since the overhaul of the Internal Revenue Code in 1986. Complying with the law will be burdensome. Not only will many taxpayers need to file Form 3115, Application for Change in Accounting Method, for each accounting method change, but the filing will also need to be done for each separate entity, or trade or business.
WK advisors have completed many hours of research and training in order to learn the new concepts contained within the Repair Regulations. We’re posting some of the most relevant articles and resources below to help you better understand the Repair Regulations.
Please contact your WK advisor for additional guidance specific to your situation.