MyRA Overview

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MyRA Overview

On January 29th, 2014, President Barack Obama signed a presidential memorandum authorizing the Treasury Department to create a new retirement-savings vehicle aimed at workers who don't have access to traditional retirement accounts, such as 401(k)s. That group includes about half the U.S. workforce.
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New Retirement Plan Requirements: 4 Things Employers Must Do

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The Department of Labor's final rules under the Employee Retirement Security Act of 1974 (ERISA) start became effective July of 2012. These rules are intended to enhance the transparency of fees and other compensation with service providers. They will help employers and their employees better understand how much their retirement plan truly costs and the value/level of service they are receiving from their vendor/service provider.

Many employers are unaware of their responsibilities as ERISA fiduciaries. Most are neither trained nor skilled to interpret vendor reports, monitor service levels or fees, and ask the probing questions necessary to fulfill their fiduciary duties. Employers may need to retain professional advisors to implement a strategy of compliance and procedural prudence to manage their plans.

Dave Kulchar, Executive Vice President and Director of Retirement Plan Services at Oswald Financial, Inc. explains that there are two phases in the implementation of these rules. He says, "Phase one requires service providers to disclose all costs to plan sponsors beginning on July 1st. Phase two requires plan sponsors to deliver this information to plan participants, effective August 1st."

The new requirements often are explained in a complex manner that are difficult for organizations to understand so we've simplified them to summarize 4 of the most critical action steps you need to take to comply with these new requirements.

1. Make sure you receive the necessary disclosures.

Employers must make sure that they have received all of the required disclosure information from their covered service providers (auditors, record keepers, custodians, actuaries, advisors etc.).  If the required information is not received by July 1, 2012, then the employer has an obligation to request the information in writing. Without the required information in hand, any fees paid to those service providers may be considered prohibited transactions under ERISA and employers can be held liable for civil penalties or excise taxes.

2. Evaluate and benchmark fees from your vendors.

The new rules of 2012 require covered service providers of ERISA-covered defined benefit and defined contribution plans to provide employers with the information necessary for them to evaluate whether fees paid to service providers are reasonable when compared to those paid by other similar plans and determine if any conflicts of interest may impact a service provider's performance under a service arrangement. Information that must be disclosed includes:

  • A description of all services to be provided to the plan
  • All compensation it expects to receive, including direct and indirect compensations
  • The manner in which compensation will be received by the service provider
  • A description of whether the services provided are fiduciary services or services under the Investment Advisors Act of 1940
  • Information about conflicts of interest

This information will be necessary to evaluate and benchmark their fees against other service providers in the market to determine whether they are reasonable or not, and to understand if the fees are in line with those paid by similar plans. Organizations will need to make sure that they aren't paying unreasonably high fees for their retirement plan's services and document their analysis and review.

Why is benchmarking necessary? As plan fiduciaries, employers must evaluate their providers regularly in terms of their cost and competence to avoid liability, even if they are satisfied with their provider and aren't considering a change. In addition, employers should be wary of simply choosing the least costly service providers and evaluate their competence and level of service to protect themselves from potential liability. 

3. Communicate fees to employees.

Effective August 1, 2012, employers need to communicate and report these disclosed fees to employees participating in the retirement plan. Under these rules, employers are also required to provide ongoing disclosure to plan participants on quarterly statements going forward. It is important to note that this communication is the responsibility of plan sponsors - not plan service providers.

These disclosures must include an explanation of fees and expenses charged or deducted from participants' accounts as well as general information about the plan's structure and operation. "In some cases, employers will need to combine all of the information disclosed by various service providers and vendors in order to communicate it to employees," Kulchar explains.

In terms of how fees should be communicated, Kulchar advises, "Employers must communicate disclosed fees on paper unless they meet the necessary qualifications to disclose them online, which in many situations may be difficult to meet. Also, there is no set format and communications can look different, but fees must be expressed in a flat dollar figure and percentage."

4. Anticipate and answer employee questions.

Employers need to anticipate and answer employee questions about the reports that they distribute on fees. They should be prepared for employees to request assistance in understanding the information being disclosed to them about the fees. Employers should also expect that employees will inquire about why they hired particular service providers and be in a position to justify and explain the fees and expenses that must be disclosed on a comprehensive basis for the first time. They may even consider providing a list of FAQs to employees when this information is disclosed.

"Currently, 72% of employees don't think they are paying anything for their retirement plan. As a result, employers should be prepared to receive and answer questions like 'Is this new?,' 'How long have we being paying this?,' 'Is this competitive?,' 'What's being charged?,' and 'Is this reasonable?,'" says Kulchar.

Although the 2012 legislation changes on retirement plans create new duties and responsibilities for employers, they provide an opportunity for employers to better understand the true costs of their plans and fees paid to providers and help employees better understand their plans as well.

Please note that by providing you with research information that may be contained in this article, ERC is not providing a qualified legal opinion. As such, research information that ERC provides to its members should not be relied upon or considered a substitute for legal advice. The information that we provide is for general employer use and not necessarily for individual application.

Additional Resources

ERC members save thousands on various retirement plan services offered through Preferred Partner, Oswald Financial. These services include waived fees on comprehensive retirement plan reviews and plan design consulting, discounts on Oswald's financial paperless 401(K).

Most Companies Can Benefit From a Plan Audit

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401(k), 403(b), pension plans and health insurance plans are wonderful perks to offer employees. But, many companies don’t understand the compliance required by the Department of Labor (DOL) and the Internal Revenue Service (IRS) that goes along with offering these benefits to employees.  The DOL and IRS have various filing and audit requirements that are applicable to these types of plans. Understanding what they need is imperative in making sure the plans maintain their tax-exempt status. 

When is a benefit plan audit required?

As a general rule – most benefit plans are required to file a Form 5500 (Annual Return/Report of Employee Benefit Plan) on a yearly basis. The amount of information included on the Form 5500 will vary depending on the type of plan in place.  If a plan has over a certain number of employees, they may need to have an annual audit of their plan performed, as well.

What actually triggers the plan audit requirement is the number of eligible employees a company has. Generally, when a company has more than 100 eli­gible employees, an annual audit is re­quired. However, you can’t just count all the people participating in the plan to determine whether or not you need the audit; you need to take into consideration eligible employees, as well. Eli­gible employees are those currently par­ticipating plus those who elected not to participate in the plan.

Companies with less than 100 eligible employees only need to file the Form 5500 as a small plan; they do not need an audit. But, companies with more than 100 eligible employees have to file the tax return along with the annual audited financial statements.  There are also certain exceptions for some types of plans with less than 100 eligible employees, stating that a Form 5500 is not required to be filed at all.

The due date of the filings for both the Form 5500 and audited financial statements relates to the due date of the Form 5500. For a calendar year-end plan, the Form 5500 should be filed by July 31, 2012. They also have the option to file for an extension, which gives them until October 15, 2012. Typically, April or May is when companies start to get questionnaires and draft Form 5500s from their third party administrators. This is a good time to address the audit requirement question.

The DOL imposes strict financial penalties when the Form 5500 either isn’t filed at all or is filed im­properly. These penalties are assessed per day and can be as high as $50,000 per report, per year for a deficient filing.

 

If an annual audit is required, what’s next?

The next step would be to find a firm to perform the audit work. Many com­panies look at the firm that does their annual accounting and tax work to see if they perform employee benefit plan audits, as well. Some accounting firms have separate employee benefit plan audit departments with dedicated staff; others do not. Once you find a firm to handle the audit, ask questions: How many other plans does the firm handle? Does it handle all types of benefit plans?

There are three types of benefit plans:

  1. Defined contribution plans – one example of which is a 401(k).
  2. Defined benefit plan, where the participants don’t contribute, but the company does — the most common ex­ample of which is a pension plan.
  3. Health and welfare plans – that offer health insurance and disability-type insurance to employees.

Firms that specialize in employee benefit plan audits have dedicated staff that work on the audits and go through specialized training, and have a streamlined audit process. Companies will also want to find out if the accounting firm is a member of the American Institute of Certified Public Ac­countants Employee Benefit Plan Audit Quality Center. They should also ask what the audit process is going to entail. How much as­sistance is going to be required on the company’s part? They should know go­ing forward how much time their em­ployees would spend assisting the firm with getting the audit completed.

Who will be involved on the company side?

Human resources and/or the accounting department will work closely with the au­ditors because they handle payroll and ben­efits and have all the documentation for what people choose to contribute, along with per­sonnel records and payroll information. Those people are the ones who will put the most effort into getting the documen­tation ready for the auditors.

How long does the audit process take?

It depends on how quickly the auditors can get the information. Typically, the actual fieldwork, where the firm is on-site reviewing original documents, takes anywhere from a day to a week, depend­ing on the size of the benefit plan. Many times the auditors will leave, but have items they want to follow up on. The whole process – from fieldwork to issuing the financial statements to getting the open items cleared – is usually a four- to six-week process.

The Form 5500 and annual audit process can be confusing for those that are new to the process or for those that don’t fully understand all of the compliance requirements that go along with operating the plans.  It really makes sense to talk to a specialist to make sure all of the plans are filing the appropriate documentation on a yearly basis.

Source: Gisondo, D. (2012). Skoda Minotti

Exclusive! ERC member companies can receive their 2011 Benefit Plan Audit at no cost and Lock in their 2010 Rate for the Next Five Years. Click for more details on Benefit Plan Audits, or contact Dani Gisondo at 440/449-6800.