For employers, managing a company retirement plan can bring many challenges. From meeting compliance deadlines to tracking investment performance and fee reasonableness, it can feel like your head is spinning out of control. As mentioned in our last blog article, Steps to De-Risk Your Plan Advisory Practice During 2019, lawsuits have steadily increased over the last decade and can cause unwanted stress and chaos for plan sponsors. Advisors should pay close attention to these three plan sponsor stressors.
Top 3 Retirement Plan Headaches:
- DOL Audit Failures
- Missing a Compliance Deadline
In 2017, 307 criminal investigations were closed for offenses that were related to employee benefits plans. Nearly a third of those individuals were indicted. In the current litigation environment, nearly any plan is subject to a fee claim.
ERISA class action settlements reached nearly $1 billion in 2017. Plan sponsors are encouraged more than ever to regularly review their plan governance to protect themselves and any corporate liability. Despite the lawsuits and sizable settlements, there are successful cases, such as Dr. Alan Sacerdote, et al., v. New York University et al., where plan sponsors were able demonstrate the procedures they had in place that helped them hold up in court. The top two risk mitigators were:
- Establishing a prudent fiduciary process
- Plan documentation
These are important to keep in my mind when evaluating your client’s retirement plan and how your fiduciary process would potentially hold up in a court of law.
DOL Audit Failures
Typically, DOL audits are not random; they can creep up with very little notice. If faced with an audit, the DOL will ask the plan sponsor to provide a number of important documents. These include the signed plan document, summary plan description, annual Form 5500 filings, summary annual reports, plan committee meeting minutes, and more. Establishing a documentation process is extremely important and should be intuitive and simple in the event that DOL reviews your client’s plan.
DOL audits can go all the way back to 6 years ago, which is the statute of limitations. Therefore, the processes your client’s retirement plan puts in place today will impact them for years to come. Think of your retirement plan clients and the length of time you have served as their retirement plan advisor. If the DOL audited their retirement plan from six years ago, how would their procedures and documentation do under the microscope?
No plan sponsor or retirement plan committee wants to hear the DOL tell them they failed their audit and are subject to a sizable fine. The number of DOL civil investigations in 2017 rose to 1,114, totaling in recoveries of $682.3 million.
In order for your clients to avoid DOL audits, you need to know what typically causes them. Some of the most common reasons are:
- Participant complaints
- Curious/suspicious figures within the Form 5500
- Referral from other agencies
- Prohibited transactions
- An improper auditing report from a plan’s auditor
Missing a Compliance Deadline
Managing a retirement plan has many moving pieces from documentation to depositing employee deferrals. Missing a compliance deadline can be very costly if the mistake is not caught in time. In fact, filing a 5500-series return late can be up to $25 a day and a pricey maximum of $15,000.
However, the DOL and IRS do offer options for filing that are anticipated to be late or are behind schedule. Your client can file for an optional two-and-a-half-month extension to their original filing deadline.
Some of the top compliance issues plan sponsors and advisors face are:
- Form 5500/audit neglect
- ADP/ACP testing
- Process refunds
- Employer contribution calculations and allocations
- Depositing employee deferrals
The old saying goes failing to plan, is planning to fail. Identifying and planning for potential lawsuits, DOL audit failures and missing a compliance deadline actually will bring your clients a step closer to avoiding them all together. Establishing internal processes for the company retirement plan and having an accountability system that enforces deadlines will alleviate some major stressors for plan sponsors and advisors.
FBi Tools Can Help | Tool Suite
FBi offers a Value and Fee Benchmarking Report with FEEPOINT® calculation that will proactively address fees to limit litigation liability. Especially since it costs more to lose business than to reprice business. Additionally, it allows advisors to see all of their plans at a 30,000-foot level. From there, advisors can evaluate which plans are at most risk of being undercharged, overcharged, or under-serviced. This aids in saving those plans at risk and preserving revenue stream. In addition, it’s important to take good notes and to build a fiduciary file. FBi has a complimentary Fiduciary File Checklist for advisors to use.
About Fiduciary Benchmarks
Fiduciary Benchmarks was founded in October 2007. We knew the industry needed an independent, comprehensive and informative benchmarking service that would help Service Providers and the Plan Sponsors they serve fulfill their duties under ERISA regardless of plan size. We do this while making sure that the Service Providers, the Plan Sponsor and the plan participants all benefit from a determination of fee reasonableness. This means that the quality of the provider, the cost drivers and the value factors associated with supporting the plan should all logically be evaluated against the fees that are being paid.
Fiduciary Benchmarks clients include the industry’s largest and most respected Recordkeepers, Third Party Administrators, Broker/Dealers, Investment Managers and Advisor/Consultants. These firms trust Fiduciary Benchmarks because they know that all of our services:
• Use data that has integrity
• Employ a method that is fair and independent
• Provide output that is simple, transparent and practical
Our mission statement best states what drives our company: We are an independent and innovative provider of actionable intelligence to the retirement industry that’s right.
Craig Rosenthal Senior Vice President, Advisor Sales & Service
Craig is responsible for sales, service, product development and partnerships with the Advisor/Consultant, Broker/Dealer, and DCIO channels.