401(k) and 403(b) Plan Mistakes Sheer ERISA Disasters. Jewell Lim Esposito, Esq.

Transcription

1 401(k) and 403(b) Plan Mistakes Sheer ERISA Disasters Jewell Lim Esposito, Esq.

2 401(k) and 403(b) Plan Mistakes Sheer ERISA Disasters

3 ERISA 401(k) and 403(b) Disasters ERISA Disasters Have Crippled American Business Learn: how to protect your 401(k) or 403(b) plan identify and correct ERISA violations thus, save on HR/management hours, strained employee relations thus, save on IRS sanctions and fiduciary

4 What s Coming Up Must session for HR professionals and fiduciaries What s we ll cover How to tell if you are an ERISA fiduciary What the IRS is targeting with 401(k) plans What do 2011 audits of tax-exempt employers reveal

5 What s Coming Up What s we ll cover The difference between a fidelity bond and fiduciary insurance and why you need both How to control plan expenses

6 Biography Jewell Lim Esposito, Esq. Tax and ERISA Attorney Employee Benefits 401(k), 403(b), pension, profit-sharing, ESOPs Executive Compensation 409A, SERPs, stock option plans, 457(f) Clients: public, private, tax-exempt

7 Biography Jewell Lim Esposito, Esq ERISA blog:

8 Benefit of Your Understanding ERISA Concepts Eyes and ears Management turns to you Employees turn to you Essential when you handle 401(k) and 403(b) plans

9 How can you tell who is an ERISA fiduciary? Are you? A natural person or an entity becomes a fiduciary in one of two ways 1. By STATUS 2. By FUNCTION

10 How can you tell who is an ERISA fiduciary? Are you by STATUS? Don t look at your formal title Named Fiduciary Plan Administrator Investment Adviser ERISA 3(21)

11 How can you tell who is an ERISA fiduciary? Are you by FUNCTION? ERISA 3(21): A person is a FUNCTIONAL FIDUCIARY to the extent that: or, the person HAS any discretionary authority or responsibility regarding plan administration.

12 How can you tell who is an ERISA fiduciary? Are you by FUNCTION? ERISA 3(21): A person is a FUNCTIONAL FIDUCIARY to the extent that: a person EXERCISES any discretionary authority or discretionary control respecting management/disposition of assets

13 Examples Plan document identifies, by name, Janice Jones as Plan Administrator. That s you, HR Director. Improper SPD (doesn t agree with plan document) Mailed out to participants

14 How can you tell who is an ERISA fiduciary? Are you? ERISA 3(21) exercises discretionary authority or discretional control over plan management or management/disposition over assets; investment advice; has discretionary authority with respect to administration of a plan

15 Functional Fiduciary So long as you function in any way to do any of the previous actions, you become a fiduciary Under ERISA, personal liability regarding fiduciary breaches (cofiduciary liability, obligation to report, joint/several)

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17 Regulating Agencies Department of Labor Internal Revenue Service Employee can get to either one of them quickly through whistle blower

18 Some IRS Nightmares Rank Them Misclassification of workers Failure to use the correct definition of compensation Deferrals in excess of 402(g) Improperly excluding eligible employees from ADP Late deposit of employee money Failure to meet hardship requirements Incorrect employer matching

19 Some IRS Nightmares Rank Them Misclassification of workers -- 4 Failure to use the correct definition of compensation -- 2 Deferrals in excess of 402(g) -- 6 Improperly excluding eligible employees from ADP -- 3 Late deposit of employee money -- 1 Not meeting hardship -- 7 Incorrect employer matching -- 5

20 List of What the IRS/DOL Are Targeting Esposito Article Working Capital Loan Repayments Foreign Earned Income Automatic Enrollment

21 Increased IRS/DOL Activity Compliance Initiative? 1200 questionnaires sent Available on IRS web-site (401(k) and 403(b) checklists Found all of the issues discussed Big items: Discrimination testing Issues with respect to turnkey loans/hardship distributions

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23 401(k) Compliance

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25 403(b) Compliance

26 403(b) Compliance

27 Enforcement Activities Increased 14,500 audits in new field agents Increased coordination between IRS/DOL and federal/state Puerto Rico coordination

28 Ways to Correct Under IRS, the Employee Plans Compliance Resolution System Self-correct (without having to go to IRS) Formally correction (with application fee to the IRS) Under DOL, the Voluntary Fiduciary Compliance program

29 Fidelity Bond/Fidelity Insurance Fidelity Bond Fidelity Insurance Why you need both

30 How to Control Plan Expenses Self-audit plan document Self-audit operations Determine who is paying what How much are you paying your broker, TPA, accountants, auditors? How are you using forfeitures?

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32 In the event that a distribution payable to a participant cannot be paid because the Plan cannot ascertain the participant s whereabouts, the amount so distributable shall be treated as a forfeiture. Why wrong? Why a prohibited transaction? These are the things about which I like to blog.

33 Questions? Call Jewell Lim Esposito, Esq EmployeeBenefitsUnplugged.com

34 QUESTIONS? Call Jewell Lim Esposito, Esq EmployeeBenefitsUnplugged.com