#WFwebinar

Sponsored by

The presentation will begin at the top of the hour.

A dial in number will not be provided.

Listen to today’s webinar using your computer’s speakers or headphones.

Welcome to the webinar!

#WFwebinar

Sponsored by

       

Tools You Can Use Audio Control

–  A dial in number will not be provided.

–  Adjust the volume by sliding the indicator in the Media Player box to the right.

–  Also check your computer’s volume for external speakers or headsets.

#WFwebinar

Sponsored by

Tools  You  Can  Use  

Speaker Bios

Resources

Media Player

Q&A

Slides

Twitter

Help

Post Event Evaluation Share This

Group Chat

HRCI & SHRM

WF Webinars

#WFwebinar

Sponsored by

       

1. May I receive a copy of the slides? YES! Click on the resource list located on the top right

portion of your screen.

2. May I review the webinar recording at a later date? YES! You may log in again using today’s link to review the

presentation on-demand.

3. Is this webinar HRCI or SHRM certified? YES! The HRCI and SHRM certification codes will appear

in the box to the right of the slides after the required watch-time has elapsed.

Frequently  Asked  Ques6ons  

#WFwebinar

Sponsored by

       

Steve  J.  Friedman      Shareholder  and  Cochair  of  the  Employee  Benefits  Prac<ce  Group  Li$ler  Mendelson  

Re6rement  Plans  Under  A:ack  by  Plan  Par6cipants  and  Government  Agencies:  

An  Ac6on  Plan  for  Employers  

Re6rement  Plans  Under  A:ack  by  Plan  Par6cipants  and  Government  Agencies  –    An  Ac<on  Plan  for  Employers  

 Steven  J.  Friedman  •  New  York  

Current  Regulatory  Environment  –  IRS  Employee  Plans  Examina<on  Program  

IRS  imposes  monetary  sanc<ons  on  employer  plan  sponsors  for:  •  Failure  to  operate  401(k)/403(b)  plans  in  accordance  with  Internal  Revenue  Code  requirements  

•  Failure  to  follow  the  terms  of  the    plan  documents  even  if  plan    opera<on  is  within  compliance    with  Internal  Revenue  Code    requirements  

Issuance  of  IRS  Revenue  Procedures  establishing  Employee  Plans  Compliance  Resolu<on  System:  •  Requires  review  of  internal  controls  to  qualify  for  IRS  self-­‐

correc<on  program  and  mi<gate  the  amount  of  IRS  monetary  sanc<ons  

•  Sanc<ons  imposed  by  IRS  on  audit  even  if  failures  are  uninten6onal  discrepancies  between  plan  opera<on  and  plan  documents  that  result  in  no  harm  to  plan  par<cipants  

•  Sanc<ons  are  based  on  a  percentage  of  plan  assets  and  can  be  quite  substan<al  

Current  Regulatory  Environment  –  IRS  Employee  Plans  Examina<on  Program  

Current  Regulatory  Environment  –  IRS  Employee  Plans  Examina<on  Program  

Substan<al  increase  in  enforcement  ac<vi<es:  •  Significant  increase  in  number  of  audits  in  the  last  several  years  

•  IRS  audits  have  well  exceeded  11,000    •  Significant  changes  to  IRS  Plan    Determina<on  Program  

•  IRS  examina<on  ac<vi<es    increases  importance  of    annual  review  of  internal    controls  to  qualify    for  self-­‐correc<on  

Current  Regulatory  Environment  –  IRS  Employee  Plans  Examina<on  Program  

Closing  agreement  =    sanc6ons  and  fines  

in  addi6on  to  IRS  required  correc6ons    

Fact:  every  re<rement  plan  

has  disqualifying  defects  

DOL  Inves<ga<ons  

Focus  on  •  Timeliness  of  Contribu<ons  •  Expenses  

–  Should  they  be  paid  by  the  plan?  –  Are  they  too  high?  –  Vendor  Choices  

•  Services  

•  Fiduciary  Prac<ces  –  Commi\ee  Mee<ngs  –  Minutes  of  Mee<ngs  –  Investment  Policy  –  Costs  of  Investments  –  RFPs/RFIs  –  Confiden<ality  Policy  (Employer  Stock  

Funds)  –  Vendor  Contracts  

•  Disclosures  –  SPDs/SMMs  –  Summary  Annual  Reports  –  Fees/Services  –  Mapping/Blackout  –  QDIAs  –  Auto  enrollment  

Screening  Reviews  

•  Replicate  IRS  and  DOL  Audits  •  Discover  Defects  •  Adopt  Best  Prac<ces  •  U<lize  IRS  and  DOL  Voluntary  Correc<on  Programs      •  It  is  best  accomplished  through  an  independent  PRIVILEGED  legal  review  that  affords  protec<on  

401(k)/403(b)  Plan    Screening  Review  

The  Opera<onal  Screening  Review  would  cover  one  or  more  problem  areas,  for  example:  

–  Plan  eligibility  and  entry  (with  a  focus  on  re-­‐hires)  –  Automa<c  Enrollment/Increase  –  Limits  on  elec<ve  deferrals  –  Timely  deposits  of  par<cipant  contribu<ons  –  Alloca<on  of  employer  and  matching  contribu<ons  –  Nondiscrimina<on  tes<ng  and  controlled  group  –  Par<cipant  loans  and  hardship  withdrawals,  and  plan  distribu<ons  

–  Composi<on  of  eligible  compensa<on  –  Spousal  consent  –  5500  Repor<ng    –  Corporate  ac<on  and  Plan  governance  

401(k)/403(b)  Plan    Screening  Review  

•  Gather  all  Plan  documenta<on    •  Interview  company  employees  who  administer  the  

Plan  to  make  sure  they’re  following  the  Plan;  if  necessary  conduct  training  

•  Review  vendor  contracts    and  interview  vendors  for  compliance  with  the  Plan  documents  

•  Review  Par<cipant  disclosures  and  enrollment  materials  

•  Review  Plan  procedures  for  compliance  with  the  law  (e.g.,  are  all  required  no<ces  being  given)  

•  Do  some  sample  tes<ng  of  par<cipant  records    (e.g.,  look  at  plan  loans  processed  over  the  last    year  or  two)    

•  Correct  any  errors  

Plan  Draeing  and  Opera<on  –  Top  10  Errors  

1.  Automa<c  Enrollment/Automa<c  Increase  –  No<ces  –  QDIA  

2.  Compensa<on  –  Overstated  –  Understated  

3.  Eligibility  of  Employees  –  Too  early  –  Too  late  –  Ineligible  Altogether  

4.  Employee  Exclusions  –  Non  Discrimina<on  pigalls  –  Seasonal,  part-­‐<me,  per  diem  

5.  Ves<ng  –  Elapsed  <me  or  hours  pigalls  

Plan  Draeing  and  Opera<on  –  Top  10  Errors  

6.  Forfeitures  –  Timing  –  Reduce  or  reallocate  

7.  Safe  Harbor  Contribu<ons  –  No<ces    –  Alloca<ons  –  Amendments  

8.  In-­‐Service  Distribu<ons  –  Loans  –  Hardship  –  Illiquid  assets  

9.  Distribu<on  Types  –  Lump  Sum  –  Installment  

10.  Matching  True-­‐up  

IRS  Voluntary  Correc<ons  

•  Self-­‐Correc<on  Program  –  Insignificant  failures  –  Significant  failures  if  corrected  quickly  enough  

•  Voluntary  Correc<on  Program  –  Significant  failures  –  Retroac<ve  plan  amendment  

Who  are  the  Plan  Fiduciaries?  

•  If  any  of  the  following  –    –  Discre<onary  responsibility  for  administra<on  

–  Exercises  discre<onary  authority  or  control  over  plan  assets  

–  Provides  investment  advice  for  a  fee  

•  DOL’s  expansion  of  fiduciaries  

Iden<fying  the  ERISA  Fiduciary  

•  Named  fiduciary  –  a  fiduciary  who  is  named  in  the  plan  document  or  who,  pursuant  to  a  procedure  specified  in  the  plan,  is  iden<fied  as  a  fiduciary.    Common  named  fiduciaries  are  the  sponsoring  employer  and  the  employer’s  board  of  directors.  

•  Deemed  fiduciary  –  an  individual  or  en<ty  that  performs  a  fiduciary  func<on  regardless  of  whether  such  individual  or  en<ty  is  actually  named  as  a  fiduciary    –  For  late  deferrals,  this  would  be  

the  person  who  approves  the  ACH  transfer  of  contribu<ons  to  the  trust  or  signs  the  contribu<on  check  

Fiduciary  Func<ons  

•  Plan  administra<on,  including  claims  •  Plan  investments  •  Plan  expenses  paid  from  plan  assets  •  Selec<on  and  monitoring    persons  performing    fiduciary  du<es  

•  Par<cipant    communica<ons  

Which  Hat  Are  You  Wearing?  

•  ERISA  allows  employers  to  wear  “two  hats”  

•  It  is  important  to  know  which  hat  you  are  wearing  because  ERISA’s  fiduciary  rules  may  apply  

Which  Hat  Are  You  Wearing?  

Se\lor  •  Plan  Design  •  Amendment  or  Termina<on  •  Employee  Communica<ons  

about  corporate  issues  •  A\orney-­‐Client  Privilege  

applies  

Fiduciary  •  Plan  Administra<on  •  Implementa<on  of  

Amendment/Termina<on  •  Holding/Inves<ng  Plan  Assets  •  Appoin<ng  a  fiduciary  •  Par<cipant  Communica<ons  •  A\orney-­‐client  privilege  may  

not  apply    

General  ERISA    Fiduciary  Du<es  

•  Exclusive  Benefit  Duty  •  Prudent  Person  Duty  •  Diversifica<on  Duty  •  Plan  Adherence  Duty  •  Disclosure  Duty  •  Duty  to  Monitor  •  Co-­‐Fiduciary  Liability  

How  the  Commi\ee  Implements  Procedural  Prudence  

•  Selec<on  of  providers  •  Request  compe<ng  bids  from  

service  providers  •  Evaluate  creden<als  and  

capabili<es  •  Understand  compensa<on  

arrangement  •  Evaluate  contract  terms  for  

reasonableness  (e.g.,  termina<on  penal<es)  

•  Check  references  •  Regularly  monitor  and  adjust  

when  appropriate  

Diversifica<on  Requirement:    Fiduciary  Protec4on  

•  ERISA  Sec<on  404(c)  provides  some  fiduciary  relief  for  investment  losses  resul<ng  from  par<cipant  elec<ons  in  par<cipant  directed  plans  

•  Plan  which  complies  with  ERISA  Sec<on  404(c):  –  Opportunity  to  Control:  Par<cipant  must  be  provided  an  opportunity  to  control  assets  of  his  or  her  individual  account  

–  Diversified  Choice:  Par<cipant  must  be  en<tled  to  choose  from  a  broad  range  of  diversified  investment  alterna<ves    

–  Actual  Control:  Par<cipant  must  actually  exercise  independent  control  

Managing  Fiduciary  Responsibility  Plan  Commi\ee  Opera<on  

•  Set  a  structure  for  opera<ons,  such  as  guidelines  for  reviewing  investment  alterna<ves  or  for  handling  claims  

•  Select  service  providers  to  assist  with  Commi\ee  func<ons  (e.g.,  investment  advisor,  accountant,  fiduciary  advisor)  

•  Determine  how  plan-­‐related  expenses  will  be  evaluated  and,  if  permi\ed  under  the  plan,  paid  out  of  plan  assets    

•  Set  up  regular  mee<ngs  •  Set  up  procedure  for  documen<ng  all  mee<ngs  held  and  

ac<ons  taken  and  providing  minutes  to  monitoring  fiduciary  

Breach  of  Fiduciary  Rules  Protec<ons  from  Fiduciary  Liability  

•  Monitor  other  fiduciaries/service  providers  

•  Conduct  plan  self-­‐screening  reviews  

•  U<lize  IRS/DOL  compliance  programs  to  correct  plan  and  fiduciary  failures  when  they  occur  

•  Procure  liability  coverage  for  fiduciaries  

DOL  Voluntary  Correc<on  Programs  

•  Voluntary  Fiduciary    Correc<on  Program  –  Online  calculator  

•  Delinquent  Filer  Program  –  Large  Plans  –  Small  Plans  

Recent  Li<ga<on  

•  401(k)  Fee  Cases  –  ERISA  breach  of  fiduciary  duty  lawsuits  were  filed  against  large  publicly  traded  companies  and  several  401(k)  service  providers  

Recent  Li<ga<on  

•  The  suits  included  a  variety  of  allega<ons,  including:  –  Fees  and  expenses  paid  by  the  plans  were  unreasonable  –  Plan  fiduciaries  failed  to  monitor  the  fees  and  expenses,  and  did  not  understand  the  fees  

–  Plan  fiduciaries  failed  to  properly  disclose  fees  –  Plan  fiduciaries  failed  to  select  lowest  investment  class  

–  Plan  fiduciaries  were  conflicted  –  Plan  fiduciaries  failed  to  have  procedures  to  properly  iden<fy,  review,  and  monitor  fees  and  expenses  

What  to  Do  to  Prevent  Errors?  

•  Communicate  with  Vendors  •  Communicate  within  organiza<on    (Payroll/HR/Legal)  

•  Read  and  Retain  Documents  and  Contracts  

•  Review  Regularly  –  Plan  Document  and  Opera<on  Review  

–  Fiduciary  Compliance  Review  

Fiduciary  Compliance  Review  

A  Fiduciary  Compliance  Review  would  examine:  –  Prudent  selec<on  and  monitoring  of  plan  investments  –  “Reasonable”  Plan  fees  and  costs  –  Par<cipant  disclosures  and  communica<ons    –  Timely  deposits  of  par<cipant  contribu<ons  –  Poten<al  conflicts  of  Company  and  plan  interests  –  Plan  governance  and  procedural  due  diligence  –  Adequacy  of  fidelity  bonds,  fiduciary  liability  insurance,  and  indemnifica<ons  

Fiduciary  Compliance  Review  

•  Review  Plan  documenta<on  (i.e.,  including  the  “boilerplate”)  to  determine  who  does  what    

•  Iden<fy  all  the  Plan  fiduciaries  and  their  intended  func<ons    

•  Make  sure  all  delega<ons  are  in  place  

•  Interview  fiduciaries  who  are  Company  employees  to  make  sure  they’re  doing  what  they’re  supposed  to  do  (especially  payroll)  

•  Establish  and  conduct  periodic  fiduciary  training    

•  Review  vendor  contracts  for  extent  of  fiduciary  liability    

•  Interview  third-­‐party  service  providers  (e.g.,  investment  managers)  for  compliance  with  the  Plan  

•  Review  Plan  fiduciary  mee<ngs  and  minutes  for  adherence  to  DOL  guidance    

•  Correct  any  errors  

Ques<ons?  

#WFwebinar

Sponsored by

       

Register for the next Webinar!

Reimagining a Performance Culture

Wednesday, January 11, 2016

Webinars start at 2 p.m. Eastern / 11 a.m. Pacific

Register for all upcoming Workforce Webinars at events.workforce.com/webinars

OR click the icon on the widget bar!