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Newsletter
JUNE
2003 Volume
20 - Number 2
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This newsletter is addressed to
our clients their attorneys, accountants and other professional advisors.
Citations may be included for those who want to refer directly to the source
material. IN THIS ISSUE:
PLAN EXPENSES - DOL issued Field Assistance
Bulletin 2003-3 addressing allocation of plan expenses among participants
IRS NEWS RELEASE ON AMENDING DOCUMENTS - On
June 30, 2003, the IRS reminded approximately 750,000 businesses that they
must update their plan documents by September 30, 2003 for the GUST and
EGTRRA law changes.
DELINQUENT FILERS OF FORM 5500 - Those
who have failed to timely file Form 5500s should take advantage of the
Delinquent Filer Voluntary Compliance (DFVC) Program.
FIDUCIARY RESPONSIBILITY - First
in a series that will address different aspects of fiduciary
responsibility.
PLAN EXPENSESOn May 19, 2003,
the Department of Labor (DOL) issued Field Assistance Bulletin (FAB) 2003-3
addressing the allocation of plan expenses among participants. This guidance provides that ERISA does not
preclude the allocation of reasonable expenses directly to the participant
for the following: ·
Hardship distributions ·
Calculation of benefit options ·
Benefit distribution ·
Qualified Domestic Relations Orders ·
Accounts of terminated participants However, the DOL specifically states in this guidance that it expresses no view as to whether any particular allocation of expenses might violate the Internal Revenue Code. Since
there are two governmental agencies involved in regulating retirement plans,
it is important to consider the IRS’ view.
The Director, Employee Plans Rulings and Agreements at IRS stated,
“The IRS is concerned, as there are issues to consider after the release of
DOL FAB 2003-3. There are no
conclusions to date. This issue will
need to be studied…” Hopefully, we will have some specific guidance in the
next 12 months. Also
consider plan document and employee notification issues and requirements that
effect payment of plan expenses. For
example, if the DOL and IRS agreed that certain expenses could be charged
directly to participants, the plan document must include language that
specifically allows for such payment of expenses or language that, at least,
does not preclude such payments. In
addition, any such expense payment must be disclosed to the plan participants
in the Summary Plan Description (SPD). It would be prudent to wait for
the IRS’ guidance before plan sponsors consider charging participants
directly for expenses as outlined in the DOL’s FAB and then consider the plan
document issues and employee notification. IRS NEWS
RELEASE ON AMENDING DOCUMENTS On June 30,
2003, the IRS reminded approximately 750,000 businesses that they must update
their plan documents by September 30, 2003 for the GUST and EGTRRA law
changes. Businesses, that have not
already done so, must formally adopt amendments to maintain the tax benefits
associated with their retirement plans. Both businesses
and their employees enjoy the tax benefits from retirement plans that are in
compliance with the law. Failure to
act by the deadline could cost a retirement plan its tax favored status. Most of our clients properly
adopted the restated plan documents and amendments last year. However, there are still a few stragglers
who either, need to approve of the additional work or sign the documents
already provided to them. DELINQUENT FILERS OF FORM 5500Those who have failed to timely file Form 5500s should take advantage of the Delinquent Filer Voluntary Compliance (DFVC) Program. Normally, both of the following penalties apply to each late filing of Form 5500 for a particular plan: ·
The IRS may assess penalties of $25 per day (up to
$15,000) for failure to file Form 5500 returns. ·
The DOL may assess civil penalties of $1,100 per day for
failure to file Form 5500 returns. Under the DFVC Program, those
who voluntarily file all delinquent Form 5500s and pay the applicable
penalty, which follows, will not be subject to the onerous penalties shown
above. Plans with less 100 participants: ·
$10 per day up to $750 for failure to file a single year’s
Form 5500 ·
$1,500 for failure to file more than one year, regardless
of the number of years that returns weren’t timely filed. Plans with more than 100
participants: ·
$2,000 for failure to file a single year’s Form 5500 ·
$4,000 for failure to file more than one year, regardless
of the number of years that returns weren’t timely filed. The penalties
are assessed from the original due date of the return, not the extended due
date. Therefore, a return, with less
than 100 participants, filed on November 1, 2003, with an extended due date
of October 15, 2003, and an un-extended due date of July 31, 2003, would have
to pay a $750 penalty, not $150. Please note, that if you have received a letter from the
IRS assessing penalties for late filing, you can still take advantage of the
DFVC Program. It is recommended that
an amended 5500 be filed with IRS indicating that the filing is being
submitted under the DFVC Program while filing concurrently under the DFVC
Program. By properly filing under the
DFVC Program, the plan sponsor will pay the more reasonable DFVC penalties,
eliminate the IRS penalty and preclude the possibility of the DOL civil
penalty One
participant plans that file the Form 5500-EZ are not eligible for the DFVCP
reduced penalty program. Since these
plans do not cover employees other than owners of a business, they are not
subject to Title I of ERISA, and therefore not subject to the DOL. |
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FIDUCIARY
RESPONSIBILITY
This is the first in a series of articles that will address different aspects of fiduciary responsibility. This first installment will focus on the basics of fiduciary responsibilities. Future issues will cover specific topics in greater detail. Who is a plan fiduciary?
Plan fiduciaries have
responsibility for the administration of the plan, the selection of
investment options and the selection of the service providers. A fiduciary can include: ·
The sponsoring
employer ·
The employer’s
board of directors ·
The plan’s
trustee(s) ·
Officers of the
employer responsible for plan decisions ·
If applicable, a
plan committee that has been given responsibility for administering the plan
and managing its investments. The
plan administrator is a person or organization responsible for administering
the retirement plan. Ordinarily, the
employer serves as the plan administrator.
The plan administrator should not be confused with a third party
administrator (TPA) such as Pacific Retirement Plans, Inc. The TPA is an outside company that
provides administrative services to the plan, but is not a fiduciary. The plan sponsor’s fiduciary
responsibilities include: 1.
Selecting an investment provider and options 2.
Communication to employees – via Summary Plan Description,
employee meetings, etc. 3.
Monitoring investment options – see below Monitoring Investment
Options Once the plan is established you
need to periodically monitor how well investments are performing. At least an annual review would be
prudent. 1. Gather information to analyze and
compare investment options being offered.
Compare other investment alternatives that are available to the
plan. Some of the factors you may
want to consider: ·
Comparison
against the objectives in the plan’s Investment Policy Statement, benchmarks
and information on other investment alternatives. ·
Returns from 1,
3, 5 & 10 years against the appropriate benchmarks, such as index and
peer group performance. ·
Standard
deviation for 3, 5 & 10 years. ·
Overall
performance in a variety of market conditions ·
Style and asset
class, portfolio changes and consistency of style over time. ·
Additional
characteristics such as size of the funds managed, assets under management,
size and depth of underlying fund company, stability and integrity of
underlying fund company, and changes in fund managers or fund company
ownership. 2. Review the materials, making sure
to study the comparison of the performance and expense of each investment
option relative to appropriate peers. 3. Assess the appropriateness of an
investment option, and if questionable, make a decision and act on it. Remove the option, or put it on a watch
list and document the reason for the decision. Decide on a future follow up date or any further actions
required. 4. Place all accumulated information,
including any notes or minutes that were part of your review, into your due
diligence file. Retain this file for
at least six years. Your
broker or financial advisor should be able to prepare the comparison of your
investment options against their respective indexes and peer groups. Additionally, there are firms that
specialize in fiduciary audits. |
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