By Carol Buckmann
We are all familiar with the expression about not seeing the forest for the trees. Sometimes, you need to step back and see the big picture. This applies to advice to plan sponsors as well, because the recommendations they get are sometimes so detailed that big compliance issues get lost in the shuffle.
Here are five resolutions to help plan sponsors get a grip on the most important compliance issues:
1. I will review the documents sent by my vendor before we send them out. Plan notices and communications are a minefield. Vendors don’t take legal responsibility for them, and they need to contain specific information and describe your plan accurately. You can be sued to provide benefits promised in your communications, even if they aren’t in the plan. Don’t assume what you were sent is correct. I often see vendor employee mistakes in these documents. Better yet, review them for legal compliance with your ERISA attorney.
2. I will understand the provisions of my plan. One of the most common plan mistakes, according to the IRS, is failure to use the correct definition of compensation is calculating contributions. Whether you use W-2 compensation or some other basic definition, and whether overtime and bonuses count, will be clearly stated in your plan document. If you don’t understand the plan provisions, ask an adviser. Your plan will also specify important rules about who qualifies for benefits, when forfeitures occur, and how to handle the forfeitures. You need to know these rules to administer the plan properly or to properly monitor the people who do the actual work.
3. I will consult advisers when I need them. Running even a small plan is a complicated matter. It is difficult for company fiduciaries to develop the expertise to handle plan investments or understand new regulations. Just about every plan should have an outside investment advisor, an outside ERISA attorney and a CPA who is familiar with ERISA matters and the Code requirements. When fiduciaries can be personally liable for losses caused by a breach of responsibility, failure to do so is penny-wise and pound foolish.
4. I will know the deadlines for taking important actions. If a 401k plan fails to distribute excess contributions within 2 1/2 months following the end of the plan year (March 15 for calendar year plans), or otherwise correct the failure, an excise tax must be paid. If the excess contributions remain uncorrected after the end of the following year, the plan can be disqualified. These are just two of the deadlines that can make a big difference. If you know the deadlines, you can prepare in advance to meet them.
5. I will document our plan decisions. Plan decisions aren’t reviewed with 20-20 hindsight. You just need to have followed a prudent process at the time to fulfill your responsibilities. But you can’t prove that you followed a prudent process if nobody currently in charge remembers or ever knew why an action was taken. People die, people leave for other jobs, and advisers change. If your plan is audited or you are sued, there is no better defense than a written record of a good decision-making process.