In the past few years, the Employee Benefits Security Administration agency of the Department of Labor has put forth great efforts to promote compliance with retirement plans regulations.
Its enforcement efforts for fiscal 2011 resulted in the collection of a staggering $1.38 billion through plan restorations, fines and penalties – and we can expect those numbers to grow. The fiscal 2013 EBSA budget requests allocating 875 full-time employees to enforcement and participant assistance programs.
What does this mean for your plan?
Am I affected? As a plan sponsor, you have a fiduciary responsibility to keep your plan in compliance with DOL rules and regulations at all times. You could be held personally liable if you fail to do so. Appointing 875 full-time DOL staff to enforcement efforts during fiscal 2012 could increase the likelihood of your plan being investigated by the DOL.
During fiscal 2011, the DOL closed more than 3,472 civil investigations and found:
• More than 75 percent of the plans were required to restore losses to the plan or take another type of corrective action to correct plan deficiencies.
• 129 individuals (such as plan officials, corporate officers and service providers) were indicted for offenses related to their plans.
From the investigations, we can conclude that a very small percentage of plans have true “bad buy situations”; the majority of violations generally came from oversight, errors and omissions by plan sponsors.
What do I need to know? As a plan sponsor, it is your responsibility to fully understand the features of your retirement plan and the rules surrounding its operation.
A majority of plan failures occur as a result of plan sponsors:
• Failing to follow their plan document provisions
• Discriminating against rank-and-file employees
• Failing to meet minimum employee coverage requirements
• Establish a plan for which their businesses do not qualify
• Failing to deposit participant contributions to the plan in a timely manner
• Filing Forms 5500 late or not at all
• Failing to ensure that participant loans comply with plan provisions
By monitoring your plan on an ongoing basis, you can avoid many of the problems typically discovered during a formal plan audit or fix errors by following an IRS or DOL sponsored correction program.
You could face severe monetary penalties if you fail to properly operate your plan. Even worse – your plan could lose its tax-favored status if certain defects exist.
Fortunately, there are tools available to assist you determining your plan’s level of compliance before a DOL audit strikes. If you discover plan deficiencies, your company will likely incur expenses trying to make it right. You can be sure the cost of fixing a problem on your own will be less than the potential expense if the DOL or IRS discovers the defect during an official audit.
For information about the DOL’s fiscal 2011 enforcement activity, visit dol.gov/ebsa/newsroom/fsFYagencyresults.dimly.
Plan sponsors should contact a financial adviser regarding an ERISA review of their plan and its compliance with fiduciary standards.
If the adviser is not capable of providing an independent fiduciary review or Independent Benchmark, we recommend seeking out one who can.
• Terry Maryniw and Aaron Maryniw are investment advisers with Maryniw Financial, 910 E. Oak St., Lake in the Hills. Contact them at firstname.lastname@example.org, 847-658-9251, or visit www.maryniwfinancial.com.