Category

Retirement Plan – Sponsors

Fiduciary Risk when Using Industry Average Reports to Determine Fee Reasonableness

This is a very important and often misunderstood issue. Industry average fee data can serve as a good general “second opinion” of fee reasonableness. The industry recognizes that fees can be very plan-centric in nature.  National averages may not capture the nuances of plans that drive cost (both in a positive and negative manner). Thus a more tailored approach (such as what is provided in a live-bid environment, like usage of the B3 Provider Analysis™) may not only be best practice, but can be more determinative of what a plan’s actual value on the open market is at any one point in time.  The detail of the B3 Analysis can be more determinative of fee reasonableness as it is based on what other providers would actually charge to provide the same services for the specific plan. It is a direct apples-to-apples comparison.

Moreover, benchmarking fees in a vacuum can paint an incomplete picture.  In addition to providing benchmarking of fees, the B3 incorporates benchmarking of services and investment opportunities.  All three of these elements must be viewed in conjunction with one another to fully vet “reasonableness” of an engagement.  Also, the B3 Analysis serves as an educational tool for fiduciaries in addressing the various components of plan fees including revenue sharing.

Based on Department of Labor (DOL) expressed intent and related fee litigation, use of averages and estimates have not been considered sufficient for determining fee reasonableness as they likely do not reflect the specific plan considerations which may impact pricing. The DOL has stated that plans should solicit live bids on a pro-active basis.  Only a periodic (every 3-4 years) robust live-bid process, like the B3 Analysis, is most likely to be considered a sufficient and prudent process for determining fee reasonableness by plan fiduciaries.

A related recent case in point involves fee reasonableness litigation against City National where the court found that in City National’s determination of fee reasonableness by use of “…averages and estimates,” rather than directly tracked expenses was not satisfactory.

 

The B3 Provider Analysis™, RPAG’s proprietary retirement plan fee benchmarking and request for proposal (RFP) system, utilizes live-bid benchmarking to provide a comprehensive benchmarking of a plan’s fees, services and investments in one robust report.

Are You Ready for an Audit?

Several events can trigger a DOL or IRS audit, such as employee complaints or self-reporting under the annual submission of the Form 5500. Often times an audit is a random event, which is why you should always be prepared. Listed below are several key items typically requested in an initial letter sent by the IRS or the DOL in connection with a retirement plan audit. These items should be readily accessible by the plan administrator at all times the plan is in operation:

  • Plan document and all amendments
  • Summary plan description
  • Investment policy statement
  • Copy of the most recent determination letter
  • Copies of Forms 5500 and all schedules
  • Plan’s correspondence files (including meeting minutes)
  • Plan’s investment analyses
  • ADP and ACP testing results
  • Most recent account statements for participants and beneficiaries
  • Contribution summary reports (i.e., evidence of receipt of these monies by the plan’s trust)
  • Loan application, amortization/repayment schedule (for all loans)

 

If you have questions about preparing for an audit, or need plan design review assistance, please contact us.

 

The “Retirement Times” is published monthly by Retirement Plan Advisory Group’s marketing team. This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent.  © 2016. Retirement Plan Advisory Group.

2017 Tax Saver’s Credit

Participants may be eligible for a valuable incentive, which could reduce their federal income tax liability, for contributing to your company’s retirement plan. If they qualify, they may receive a Tax Saver’s Credit of up to $2,000 ($4,000 for married couples filing jointly) if they made eligible contributions to an employer sponsored retirement savings plan. The deduction is claimed in the form of a non-refundable tax credit, ranging from 10 percent to 50 percent of their annual contribution.

When participants contribute a portion of each paycheck into the plan on a pre-tax basis, they are reducing the amount of their income subject to federal taxation. And, those assets grow tax-deferred until they receive a distribution. If they qualify for the Tax Saver’s Credit, they may even further reduce their taxes.

Participants’ eligibility depends on their adjusted gross income (AGI), tax filing status and retirement contributions. To qualify for the credit, a participant must be age 18 or older and cannot be a full-time student or claimed as a dependent on someone else’s tax return.

The chart below can be used to calculate the credit for the tax year 2017. First, participants must determine their AGI –total income minus all qualified deductions. Then they can refer to the chart below to see how much they can claim as a tax credit if they qualify.

Filing Status/Adjusted Gross Income for 2017
Amount of Credit Joint Head of Household Single/Others
50% of amount deferred $0 to $37,000 $0 to $27,750 $0 to $18,500
20% of amount deferred $37,001 to $40,000 $27,751 to $30,000 $18,501 to $20,000
10% of amount deferred $40,001 to $62,000 $30,001 to $46,500 $20,001 to $31,000
Source: IRS Form 8880

 

For example:

  • A single employee whose AGI is $17,000 defers $2,000 to their retirement plan will qualify for a tax credit equal to 50 percent of their total contribution. That’s a tax savings of $1,000.
  • A married couple, filing jointly, with a combined AGI of $38,000 each contributes $1,000 to their respective company plans, for a total contribution of $2,000. They will receive a 20 percent credit reducing their tax bill by $400.

 

With the Tax Saver’s Credit, participants may owe less in federal taxes the next time they file by contributing to their retirement plan. See our accompanying 2017 Tax Saver’s Credit post.

This illustration is hypothetical and there is no guarantee that similar results can be achieved.  If fees had been reflected, the return would have been less. The “Retirement Times” is published monthly by Retirement Plan Advisory Group’s marketing team. This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent.  © 2016. Retirement Plan Advisory Group.

“Conflict of Interest” or “Fiduciary” Rule: A Plan Sponsor’s Q&A – Part II

Last edition we featured the first part of our Fiduciary Rule Q&A series. Now enjoy the final five questions and wrap-up. After years of proposed regulation issuance, comment periods, drafting and anticipation, the Department of Labor (DOL) finally published final guidance regarding the definition of “fiduciary” on April 8, 2016. It is important for plan sponsors to understand the reasoning behind, and the scope of, the final rules. The Q&A is meant to assist you in understanding the regulations and how they pertain to you, your plan and your participants.

Q: The proposed rules seemed to have a heavy impact on participant education. Did that carryover to the final rules?

A: The new rules explicitly state that plan sponsors and service providers may provide general plan information, general financial, investment and retirement information, notional asset allocation models and interactive investment tools without becoming a fiduciary. The proposed rules prohibited use of specific investments in plans being used in models or interactive tools if the provider wished to avoid fiduciary status. The new final rules allow for identification of specific investments if the following conditions are met:

  • The models/tools only identify designated investment alternatives (DIAs) in the plan that are monitored by fiduciaries that are independent from the individual/organization that developed/marketed the investment alternative;
  • Other DIAs, with similar risk/return characteristics, that are not used in the model/tool are identified;
  • A statement that those other DIAs are similar; and
  • Identification of where participants/beneficiaries can get additional information regarding those similar DIAs.

Q: Are my employees (employees of the plan sponsor) considered fiduciaries under these rules?

A: Typically, no. If the employees aren’t receiving a fee (not considering their wages) for providing either of the below-listed recommendations, they will not be considered a fiduciary under the rules.

  1. Work in Human Resources or Finance departments and provide recommendations to the plan committee; or
  2. Communicate information regarding the plan and/or distribution options to participants.

Q: When will a plan’s service provider be considered a fiduciary under the new rules?

A: The new rules sweep additional individuals and organizations within the definition of fiduciary due to the types of activities that will now be considered recommendations leading to “investment advice.” Under the new rules, many sales and marketing actions will be considered fiduciary in nature. That said, there are a few common instances where communication between the sponsor and the service provider will not be fiduciary in nature. These include (but are not limited to):

  • Requests for Proposals (RFPs) – Service providers may provide investment lineups if they are responding to an RFP for services. This is common with RFPs for recordkeeping services, and occasionally with RFPs for advisory services. The proposed investment lineup may be based on plan size, or the plan’s current investment menu. However, for this type of communication to avoid straying into the fiduciary realm the service provider must disclose any financial interest it may have (if any) in any of the investments. This is common if the recordkeeper is also a fund company with proprietary offerings.
  • Independent Plan Fiduciaries – Service provider recommendations that are made to plan fiduciaries, independent of the advisor, may also not give rise to fiduciary status. In this instance, the independent fiduciary must possess “financial expertise” which is considered present if they are a registered investment advisor, or holds/manages/controls (in the aggregate) at least $50 million in assets. In these instances the advisor must make certain determinations regarding the independent fiduciary, in addition to the fact that they possess financial expertise.
  • Marketing – As long as a service provider does not market an investment platform as meeting individualized needs of a plan, and the provider states that it is not providing impartial advice/acting in a fiduciary capacity, the marketing of the platform is not a fiduciary action.

Q: Will the new rules impact my (plan sponsor) relationship with my plan’s service providers?

A: The answer depends upon the service providers’ current engagements with the plan and plan sponsor. For service providers presently serving in a capacity role, little may change. It is possible that they move from a broker-dealer engagement to a registered investment advisory relationship to make the engagement cleaner and more transparent. But that likely will not impact the services, compensation, or fiduciary nature of the engagement.

Service providers receiving “conflicted,” or uneven compensation (such as commissions, revenue sharing and 12b-1 fees) must decide if they wish to continue under that design, and meet the BIC Exemption rules, in which case you will receive a great deal more disclosure and the advisor will have to meet more arduous requirements (duties of prudence and loyalty, disclose their conflict of interest policies, etc.) than those to which they are accustomed. Or they may alter their engagement by entering into a fee-for-service RIA engagement.  In such an engagement the fees (either a flat dollar fee or a flat percentage of assets based fee) will not vary depending upon the investments recommended/selected.

Q: I’ve heard about co-fiduciary status. Am I responsible for all these new co-fiduciaries on the plan?

A: Recently representatives of the DOL at an industry conference made informal comments that they believed that co-fiduciary responsibilities would likely extend to individuals/organizations that become fiduciaries by way of tripping the new rules. One such statement intimated that a plan sponsor may even have to monitor service provider participant calls in order to best meet their fiduciary responsibilities. The full implementation of the new rules is still in its infancy and these were informal comments, so it bears watching to see just how far plan sponsor co-fiduciary responsibility will extend.

In Conclusion

The retirement landscape evolved greatly over past decades. Plan type, services offered, investments made available, and fiduciary concerns shifted considerably since the inception of ERISA in 1974. The new rules issued by the DOL have been expected, reviewed and debated for well over five years. In fact, in June Congress passed resolutions to nullify the rules (with Presidential veto expected) and nine organizations filed suit against the DOL and the Secretary of the DOL arguing the rules are overbroad and unconstitutional. The rules will become effective in stages (April of 2017 and January of 2018), and it bears watching to see how additional guidance from the DOL will impact the responsibilities of plan sponsors. Regardless, these rules will have a profound impact on plan fiduciaries, plans and participants. They are intended to, and should, result in a higher level of responsibility being placed on those individuals and organizations positioned to impact or influence participant ability to save for their retirement. As a result, your mission is to keep abreast of any additional guidance and developments. If you have further questions, please contact your plan consultant.

The “Retirement Times” is published monthly by Retirement Plan Advisory Group’s marketing team. This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent.
(c) 2016. Retirement Plan Advisory Group.
ACR#207478 09/16

“Conflict of Interest” or “Fiduciary” Rule: A Plan Sponsor’s Q&A – Part I

After years of proposed regulation issuance, comment periods, drafting and anticipation, the Department of Labor (DOL) finally published final guidance regarding the definition of “fiduciary” on April 8, 2016. It is important for plan sponsors to understand the reasoning behind, and the scope, of the final rules. The following Q&A is meant to assist you in understanding the regulations and how they pertain to you, your plan and your participants.

Q: Why did the DOL issue these new rules?

A: The definition of “fiduciary” for purposes of providing investment advice dates back decades, predating the advent of 401(k) and other defined contribution plans. Prevalent thought within the retirement industry was that the definition was due for an update to reflect the evolution of the retirement plan landscape and to bring more parties under the scope of ERISA’s standard of care for fiduciaries.

Q: Who are the primary targets of the new rules?

A: The primary targets of the new rules are providers of retirement plan services and products. Advisors, consultants, recordkeepers, third party administrators, etc., are those most impacted by the new rules. The primary objective of the regulations is to sweep into the definition of “fiduciary” more individuals and organizations who may influence plans, plan sponsor fiduciaries and participants in regards to investing-related activities. In so doing, these individuals/organizations will be held to the highest standard of care in providing investment advice and recommendations under the terms of ERISA.

Q: In a nutshell, what do the new rules say?

A: Essentially the new rules provide that an individual/organization will be a fiduciary under ERISA if they make a recommendation to a plan, plan sponsor fiduciary (e.g., a plan committee) or plan participant (or beneficiary) regarding investment products/services, distributions or rollovers . . . and they receive a fee for doing so.  “Recommendation” is defined as a communication that can reasonably be viewed as a suggestion that the recipient of the information take (or refrain from taking) some course of action.

Q: Does our plan fall under the new rules?

A: All ERISA-covered plans that have an investment element will be covered. 401(k), 403(b), profit sharing, money purchase pension and defined benefit plans will all be covered. Interestingly, recommendations for taking a distribution or rolling over to an IRA will also be covered. And an unexpected surprise for most plan sponsors is that health savings accounts (HSAs) are also covered.

The “Retirement Times” is published monthly by Retirement Plan Advisory Group’s marketing team. This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent.
(c) 2016. Retirement Plan Advisory Group.
ACR#202585 08/16

Role of a Retirement Plan Advisor

Plan fiduciaries must act as prudent experts under ERISA, and are therefore held to a high standard of care with respect to plan-related decisions regarding investments, service providers, plan administration and general ERISA compliance issues.

Most prudent plan sponsors hire a plan advisor to help them adhere to ERISA’s rigorous standards and to meet their objective of offering a best practices retirement plan to their employees. ERISA rules are clear — every decision you make as a fiduciary must be in the best interests of plan participants and their beneficiaries, and certain relationships may result in prohibited transactions.

Attributes of a Good Advisor Why You Should Hire One
Independence Ability to help evaluate funds and providers objectively and without conflict of interest
Familiarity with ERISA Ability to keep the committee updated on litigation, legislation and regulations impacting plans and fiduciaries
Prudent Expert ERISA section 404(a) requires fiduciaries to act with the skill, knowledge and expertise of a prudent expert
Expertise with Plan Design Ability to help plans maintain qualified status while continuing to meet the goals and objectives of our organization
Knowledge of the Provider Marketplace Ability to ensure that our plan is being administered in the most efficient manner and for a reasonable price
Qualified Plan Investment Expertise Ability to evaluate, select and monitor fund performance
Documentation Skills Ability to demonstrate procedural prudence in a well-documented manner
Communication Skills Ability to educate employees regarding plan highlights and how to create an appropriate investment strategy
Acceptance of Role as a Co-Fiduciary Willingness to acknowledge in writing that they’re a co-fiduciary to our plan with respect to the investment advice being delivered
Full and Open Disclosure Fully and openly discloses all sources of fees being received on a direct and/or indirect basis

 

About Retirement Plan Advisory Group

Retirement Plan Advisory Group (RPAG) is an alliance of accomplished retirement focused advisors representing over 400 member firms, serving 28,000 plan sponsors with more than $200 billion in collective assets under influence. Learn more at rpag.com.

 

Retirement Plan Advisory Group ACR#176770 03/16

Ten Retirement Plan Resolutions for Plan Sponsors

This edition of our Retirement Plan Services newsletter is a recent publication by John C. Hughes of The ERISA Law Group, P.A. in Boise, ID. He has given 10 important issues for plan sponsors to consider during 2016, and we wanted to share them with you. Enjoy!

1) Adopt a restated and amended “PPA” plan document by April 30, 2016. This applies to those qualified defined contribution plans that are on “preapproved” (i.e., “volume submitter” and “prototype”) documents. In the course of the restatement process, exercise caution to ensure that existing provisions are properly carried over to the new document (or changed, as desired and permitted). We have observed in many (too many) instances that provisions are inadvertently changed or left out during the restatement process. This will result in qualification failures. The restatement is also a good time to “scrub” your document to ensure it is up to date in terms of prior amendments, particularly if the plan will be submitted to the IRS on or before April 30 for a determination letter.

2) Begin to develop a plan of action to transition onto a preapproved document if your plan is individually designed, given that individually designed plans will generally no longer be able to obtain their own determination letters. Several pieces of guidance have been issued on this topic including IRS Notice 2016-03, which was issued on January 4, 2016.

3) Carefully review (and revise, as necessary) your Form 5500 (and audit report) prior to filing. This will decrease the chances that your plan will become the subject of a Department of Labor or IRS audit, investigation, or inquiry.

4) Make sure that you automatically enroll participants if your plan provides for automatic enrollment, and that you are otherwise operating that feature (and any associated automatic escalation feature) in accordance with the plan terms. It is important to actually enroll and/or escalate the right employees at the right time and in the right amounts, and that the proper notices are timely furnished. Often this does not occur, requiring difficult and sometimes costly corrections.

5) Make sure that any plan related documents such as SPDs and quarterly/annual notices that are being furnished electronically to participants are being delivered electronically by legally permissible means. That is, there are acceptable and unacceptable ways to electronically deliver notices and disclosures. These rules are sometimes ignored, which means that under ERISA and the Internal Revenue Code the disclosures have not been made at all.

6) Assess the reasonableness of the fees that are being paid with plan assets. There are new class actions being filed by participants constantly, not to mention the Department of Labor’s keen interest in the issue.

7) Avoid instances of late deposits (and/or identify past instances) so that they are properly reported and corrected. Late deposits continue to be a frequently occurring problem, and a problem that is receiving increased attention from the Department of Labor.

8) Review plan terms and internal processes to ensure that the correct employees are being let into the plan at the right time. For example, it is not permissible to exclude “temps” or “part-time” employees on a blanket basis. Similarly, there are often issues with regard to “leased employees” and/or independent contractors that go unnoticed (and snowball as time goes by).

9) Be conscious of the effect of any corporate transactions. For example, an acquisition may require new employers to affirmatively adopt a plan, or require an amendment to keep new employers out of a plan. In most cases, it is critical to identify these issues and take appropriate action prior to the close of any transaction. Those kinds of problems are difficult to untangle once they occur.

10) Complete ADP/ACP testing so that corrections can be made in early 2016. In performing such tests, ensure that the correct categories of employees are properly considered. For example, sometimes all “highly compensated employees” are improperly categorized, which in turn makes the test results useless. Overall, check in with your recordkeeper to ensure other necessary IRS testing is being properly performed (and documented).

This is by no means an exhaustive list. Unfortunately, the volume and complexity of the laws governing qualified retirement plans (and also nonqualified and welfare plans) is burdensome. This burden rests with the employer plan sponsor, and requires constant oversight and evaluation.

This Newsletter is intended to provide general information only and does not provide legal advice nor create an attorney-client relationship. This Newsletter does not discuss potential exceptions to the above rules. The application of ERISA can differ from client to client. For information regarding the impact of these developments under your particular facts and circumstances, you are advised to seek qualified legal counsel. This material may also be considered attorney advertising under rules of certain jurisdictions.

Board of Directors’ Liabilities

Virtually all plan documents name the sponsor as “plan administrator.” Typically the Board of Directors of a company (sponsor) is seen as the official governing body of the sponsor, and thus plan document language directs that they, in effect, are the plan administrator. Most Boards of Directors are not involved in the day-to-day operations or decision making in regards to their plans, thus without effective delegation of authority they are likely not following the terms of their plan document and are violating their fiduciary responsibilities. The Board of Directors’ Resolutions documents them following the terms of their plan document and officially delegating authority to a committee. With such delegation they are now only responsible for monitoring the committee (perhaps an annual review of committee meeting minutes) rather than bearing the day-to-day fiduciary responsibility of the plan. A Committee Charter helps to bracket what are, and are not, the fiduciary responsibilities delegated to the Committee and therefore limits their potential liability exposure to only those responsibilities delegated. The Acceptances are meant to bracket the duration of the Committee members’ exposure to liability. They shouldn’t be liable for actions taken prior to becoming fiduciaries, but they may be required to remedy any breaches that occurred prior or failure to do so may be considered a subsequent breach.

This article was derived from “Retirement Times”. The “Retirement Times” is published monthly by Retirement Plan Advisory Group’s marketing team. This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent. (c) 2015. Retirement Plan Advisory Group. ACR#161752 11/15.

 

Specialty Asset Classes in a Retirement Plan Menu

Specialty asset classes are those which do not fall into the “core” group of asset classes. Core asset classes include: U.S. domestic equities, international, and fixed income. For the purpose of this commentary, specialty asset classes consist of the following: technology, health care, emerging markets, and real estate.

While specialty asset classes can provide value when constructing a fully diversified portfolio, their inclusion in a retirement plan as a stand-alone option is potentially problematic. The concern revolves around expanded fiduciary liability exposure created by potential unsophisticated participants utilizing specialty asset class investments inappropriately.

The classic scenario is where a participant nearing retirement learns of attractive returns a co-worker has obtained by investing in a specialty asset class (i.e. Technology in the late 1990’s). Subsequently, the participant decides to invest a significant portion of his/her account balance in the same specialty fund in an attempt to achieve similar returns. Due to volatility inherent in this asset class, the investment experiences a significant loss over the next year and the participant becomes disgruntled and seeks reparation from the plan. The participant may contend that he/she did not receive appropriate education regarding the risks inherent in the investment. And fiduciaries may be liable for allowing an imprudent investment to be offered within their plan.

Note that many core asset class funds do have some exposure to specialty asset classes. International funds may have some emerging markets exposure. Core bond funds may have high yield exposure. Domestic equities may have health care, technology and real estate exposure. This may cause some participants who invest further in specific specialty funds to be unknowingly and inappropriately overweighed in specialty asset classes.

Other concerning issues also exist. In the event of underperformance of a fund (or provider), where fund removal and mapping becomes appropriate, some providers do not have multiple options within a specific specialty class. Where then should these assets be mapped to? There is no clear “fiduciary safe” answer. In addition, many specialty asset classes do not yet have substantial benchmarks to assist in monitoring, a fiduciary responsibility.

The inclusion of specialty asset classes in a retirement plan menu should be considered carefully and subsequently the decision for or against should be well documented in the retirement committee’s meeting minutes. Your plan consultant is happy to help you with this process.

 

This article was derived from “Retirement Times”. The “Retirement Times” is published monthly by Retirement Plan Advisory Group’s marketing team. This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent. (c) 2015. Retirement Plan Advisory Group. ACR#157926 10/15.

Record Retention: What to Keep and for How Long

 

When it comes to plan-related document storage remember that your primary goal should be to preserve materials in a format allowing for quick and easy retrieval. It’s appropriate to store plan records electronically whenever possible. Also, be sure to retain an executed copy (or countersigned copy, as applicable) of each record and not the unsigned original that may have been sent to you for signature. While most providers can provide reports and current plan documents, the plan administrator remains ultimately responsible for retaining adequate records that support the plan document reports and filings.

responsible for retaining adequate records that support the plan document reports and filings.

Documentation Retention Requirement for Audit Purposes*
Plan Documents (including Basic Plan Document, Adoption Agreement, Amendments, Summary Plan Descriptions, and Summary of Material Modifications) At least six years following plan termination

 

Annual Filings (including 5500, Summary Annual Reports, plan audits, distribution records and supporting materials for contributions and testing) At least six years

 

Participant Records (including enrollment, beneficiary, and distribution forms; QDROs) At least six years after the participant’s termination
Loan Records At least six years after the loan is paid off
Retirement / Investment Committee meeting materials and notes At least six years following plan termination

*For litigation purposes, we recommend that documents be retained indefinitely.

Forfeiture dollars are to be allocated annually in accordance with your plan document’s direction. Typically forfeitures can be used to pay allowable and reasonable plan expenses and/or to offset employer contributions. If dollars remain they should be allocated back to participants in the year for which they are accrued (again, as directed in the plan document).

The issue with not allocating forfeitures for the year they are accrued (or shortly thereafter), is that they are considered to be the property of the participants existing in the year(s) of accrual. The remedy for carrying multi-year forfeitures is voluntary compliance with the IRS. An attorney should be able to help with the application and direction. Aside from any fees/penalties the IRS may levy, plus the cost of the Voluntary Correction Program (VCP), there will be the issue of identifying and finding participants in each year affected, so forfeitures can be properly distributed to those that are entitled to them.

The accounts of lost participants may be forfeited after a reasonable effort is made to locate the participant. This must be authorized by the plan document. Such amounts may be added to the plan’s forfeiture account and used in the same manner as other forfeitures. However, if the participant reappears the account must be restored.

What constitutes as a reasonable effort to find missing participants depends on the facts and circumstances. Recent DOL guidance on tracking down participants where a plan is terminated indicates the following:

  • Notify participant by certified or electronic email (DOL has a model notice);
  • Review plan records;
  • Contact designated beneficiary;
  • Use free online search tools; and
  • Size of account may be considered in deciding how much effort is required.

 Note that IRS and SSA letter forwarding programs are no longer available.

 

This article was derived from “Retirement Times”. The “Retirement Times” is published monthly by Retirement Plan Advisory Group’s marketing team. This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent. (c) 2015. Retirement Plan Advisory Group. ACR#157926 10/15. ACR#161752 11/15.