Retirement Plan Correction Solution Forfeitures: The Final Frontier
Solutions in a Flash Article | March 30, 2021
This is the dilemma of the company, Enterprise, Inc. Enterprise engaged Galactic Payroll Services to administer its 401(k) plan for six years. Once Enterprise had grown larger into a small empire, its CEO, Jean-Luc Picard, decided he needed to improve the plan to attract and retain top talent. On the advice of his financial advisor, Picard moved the Enterprise 401(k) plan to a new third party administrator, the Borg. During the conversion to the Borg, as they were being assimilated, the new plan consultant, William Riker, noticed the very large forfeiture balance in the plan. After probing Galactic Payroll for further details, Riker learned that the total forfeitures actually represented amounts from plan years going back to 2015. Picard was completely unaware of the situation and thought Galactic Payroll had properly administered the plan. Riker offered to solve the problem and so Picard said, “make it so and you’ll be my Number One administrator.”
One Cent, Two Cents, Red Cents, Blue Cents: What Counts as Plan Compensation?
Solutions in a Flash Article | March 4, 2021
Before we start, FBLC would like to give a big shout out to all of the amazing, hard-working third-party administrators out there who have been working long, hard hours these past few months on 2021 testing. We see the hour at which you send us emails (And Saturdays. And Sundays.). This year’s testing season has been like a very bad COVID hangover. Everyone we’ve spoken to has been struggling (and that includes plan sponsors, too) and we want you to know that you’re not alone. We’re here for you. This Solution is dedicated to all the fantastic pension administrators out there helping Americans save for retirement.
Here Comes the Sun: Shedding Light on the Effects of Controlled Groups on Plan Administration
Solutions in a Flash Article | February 19, 2021
George owns three companies: Day Tripper Travel Agency, The Weeping Guitar Brewery, and Strawberry Fields Natural Foods. All three businesses are corporations. George is the sole owner of the brewery but has partial ownership in the other two entities. Day Tripper is split between George, owning 90 percent, and Paul, who owns 10 percent. Strawberry Fields is owned 85 percent by George and 15 percent by Pete. Over the past several years, Day Tripper’s revenues have grown steadily, and George decides he wants to both provide greater benefits to the Day Tripper employees and encourage them to stay with the company. George contacts a TPA, Brian, about setting up a retirement plan. George does not mention the other businesses to Brian. The Day Tripper 401(k) Plan (the “Plan”) is established effective January 1, 2018. All four employees of Day Tripper make elective deferral contributions to the Plan and Day Tripper provides a discretionary employer matching contribution of 100 percent of deferrals up to 4 percent of compensation for the 2018 and 2019 plan years.
Where Have You Gone, Joe Participant? (Best Practices and Warnings From the DOL)
Solutions in a Flash Article | January 20, 2021
Mrs. Robinson is so proud of herself. She completed her annual census and additional plan data forms, and submitted them to Garfunkel Pension Services two weeks before the deadline. In just a few shorts weeks, her assigned consultant, Simon, calls her to review the testing results. Most everything went smoothly, but Simon lets Mrs. Robinson know that, based on the participant count, the plan will need to be audited in 2021. Once Mrs. Robinson finds out how much a typical audit report costs, she becomes highly motivated to figure out why, with only 75 employees, they could have over 120 participants in the plan. After reviewing the participant data with Simon, Mrs. Robinson learns that there are a lot of terminated participants lingering in the plan and that she should have been forcing them out of the plan. Some of these folks have been gone for years and she has no clue where to find them.
The Nonamender’s Lament: But, I Swear I Signed it!
Solutions in a Flash Article | January 11, 2021
Still living in the land of virtual meetings, Paul and Ira Buchman, owners of Buchman’s Sporting Goods, log onto the annual meeting with their financial advisor, Murray, and Third Party Administrator. Jamie, from Stemple Pension Services, reviews the action items coming up with the group. In addition to the census data needed for the 2020 testing, Jamie tells Paul and Ira that the 401(k) Plan will need to be restated this year for the Third Cycle Restatement period. She also casually mentions that the document Stemple has on file from the PPA restatement isn’t signed or dated and asks if the boys can check their files. “I’m sure it was signed and dated. If you sent it to us, we would have done that,” Ira insists. Paul leaves the screen for a moment, drawers are heard opening, papers go flying, and after a few minutes, he returns with the document in hand. “See? Here it is. And if I go to the signature page…” There is an awkward pause and Paul’s face is crestfallen. “It’s not signed. How could it not be signed? Ira?” “What Ira? You’re the one with the document, Paul!” Jamie listens to the men bicker, happy that they haven’t blamed her yet.
It’s the End of the Year as We Know It: Preparing for the End of the Plan Year, Calendar Year, and Next Year
Solutions in a Flash Article | December 10, 2020
It is January 15, 2020. Evangeline was recently hired by Acadia International as Director for Human Resources. Although she has prior experience with health plans, she is relatively new to retirement plans. Acadia sponsors a calendar year 401(k) profit sharing plan with a basic safe harbor matching contribution. Over the next month before the current HR director retires, Evangeline is put through her paces as she provides information to the accounting department for preparation of Forms 1099-R, uploads participant information to the plan recordkeeper for new deferral elections, and compiles new hire data into a census file for the third party administrator (“TPA”). By mid-February, Evangeline stops to take a breath, assured by her predecessor that the busiest plan time is behind her. “Good,” she thinks. “How much worse could things get?”
The Return of Identity Theft: The Risk Fights Back
Solutions in a Flash Article | November 5, 2020
When we last left off in 2019 “Identity Theft: The Rising Threat to Retirement,” we raised concerns for service providers regarding fraudulent distribution requests and the rise of identity theft in the retirement industry. Since that time, there have been several prominent lawsuits in the news involving retirement plan participants who have been victimized by cybertheft and found no resolution with either the plan sponsor or the service provider (Estee Lauder, Abbott Labs, etc.). What is even sadder is our Firm’s frequent involvement helping clients get through the worst experience of their lives, becoming the victim themselves of identity theft.
To Purge, or Not to Purge, That Is the Question
Solutions in a Flash Article | August 31, 2020
Company BBC has been unfortunate enough to become the subject of an Internal Revenue Service (“IRS”) examination. During the course of the exam, the IRS discovers some operational issues that cause the exam to be expanded back to 2014. Villanelle, the new Human Resources director, has been searching high and low for plan documents covering the 2014 – 2015 plan years. Unable to locate the documents, she contacts the plan’s service provider/payroll company, only to learn that it purges its files after each restatement, as it is only a ministerial third-party administrator (“TPA”) and leaves it up to the plan sponsor to meet any document retention obligations under the Employee Retirement Income Security Act of 1974 (“ERISA”) and/or the Internal Revenue Code (the “Code”). Villanelle’s predecessor, Eve, kept the office clean. A little too clean. She, too, purged records periodically, regardless of what the legal retention standards were. Villanelle could just kill Eve!!
The Top-Heavy Test: Easy to Fail, Easy to Fix
Solutions in a Flash Article | July 30, 2020
Angela and Samuel own Click & Go, Inc., a small tech company in sunny California. After five years of successfully running the business, they decided to hire three employees. Samuel, who is the Plan Administrator, informed his TPA of the employees’ hire dates so they could be enrolled in the Click & Go, Inc. Defined Contribution Plan (the “Plan”). The TPA explained that with the introduction of the new employees, it was important to ensure that all activities of the Plan are nondiscriminatory. The TPA further explained that, because the new employees earn and likely will contribute substantially less money than Angela and Samuel, the Plan will probably fail the top-heavy test. Samuel, being the meticulous person that he is, wants to know everything about the importance of top-heavy testing, why his Plan will probably fail the top-heavy test, the adverse consequences of the failure, and how to avoid such adverse consequences in the future. The TPA is thrilled to work with a Plan Administrator who is proactive in maintaining the Plan’s qualified status and is happy to tell him everything he needs to know about top-heavy testing. What all does Samuel need to know?
Breaking Up Is Hard To Do: Determining the Qualification of a Domestic Relations Order
Solutions in a Flash Article | June 12, 2020
Margaret has provided third party administration services to the Kramer Advertising, Inc. Profit Sharing Plan (the “Plan”) for three years. One Monday morning, Margaret gets a call from the owner, Ted, letting her know that he has just finalized his divorce. Acting as Plan Administrator for the Plan, Ted has received a domestic relations order (“DRO”) from his ex-wife to divide his account.
The One About the Audit Requirement for Form 5500
Solutions in a Flash Article | April 10, 2020
Central Perk Restaurant, Inc. (“Central Perk”) is a gourmet restaurant chain with locations in major metropolitan areas across the country. Monica, the owner of Central Perk, has been the plan administrator for the Central Perk Retirement Plan (the “Plan”) for the past four years. In 2019, Monica hires a new third-party administrator (“TPA”) firm run by Chandler Bing, a very capable TPA.
The Tale of Buffy, the ADP/ACP Slayer
Solutions in a Flash Article | February 21, 2020
Buffy, the HR Director, is responsible for overseeing the company’s retirement plan (the “Plan”), a calendar year 401(k) plan with discretionary matching contributions. Buffy receives an email on March 14, 2019, from Xander, the third-party administrator (“TPA”), with the retirement plan’s annual compliance summary for 2018 and notification that the Plan failed the Actual Deferral Percentage (“ADP”) and the Actual Contribution Percentage (“ACP”) tests, the two nondiscrimination tests for 401(k)/matching plans. The email states that three highly compensated employees (“HCEs”) should receive refunds from the Plan by March 15, 2019. Buffy fails to notice the instruction regarding the refunds and does not thoroughly review the annual compliance summary. The TPA did not follow up with Buffy regarding the refunds.
Hear Ye, Hear Ye: Participant Notices for Retirement Plans
Solutions in a Flash Article | January 24, 2020
Sue is hired in November 2019 as the Human Resources Director for a company. The honeymoon period is short, as Sue finds herself holding open enrollment meetings and struggling to meet the requirements to offer the company’s health plan to employees. After many sleepless nights, Sue enjoys a restful holiday and settles more into her role. Hoping to develop a better understanding for the company’s retirement plan, Sue attends the fantastic Pensions on Peachtree (POP) conference hosted by Ferenczy Benefits Law Center (FBLC) the following spring. While there, she hears references made to safe harbor notices, QDIA notices, Summary Annual Reports, and quarterly participant fee disclosures—all of which she suspects apply to her company’s plan. Unfortunately, Sue has no idea if any such notices have been provided. What can Sue do to get the plan back on track and to correct for any notices that were missed?
I’m Late! I’m Late! For a Very Important Form 5500 Date!
Solutions in a Flash Article | September 19, 2019
Let’s start playing the Pension Geek Feud!! Top five answers on the board. Name a way that plan sponsors traditionally make mistakes and blow the Form 5500 deadline:
- Completely ignores communications from service vendor;
- Doesn’t get started early enough on mandatory audit;
- Starts audit, but finds major problems and can’t fix them timely;
- Has an owner-only plan and doesn’t realize it needs a Form 5500;
- Change of personnel causes communication breakdown.
More likely than not, any service provider reading this Solution has come across at least one of the above reasons for why a client missed the Form 5500 filing deadline. The good news here is that, even when a Form 5500 is not filed timely, there is an easy way to fix the problem.
Administering Hardship Distributions Should Not Be a Hardship
Solutions in a Flash Article | August 14, 2019
According to a survey on Bankrate.com [https://www.bankrate.com/banking/savings/financial-security-january-2019], 60 percent of Americans do not have sufficient funds saved to enable them to pay for an unexpected emergency expense. The failure to save money is at epidemic levels.
Settle Down Now: Understanding Settlor Functions, Plan Expenses, and Who Can Pay What
Solutions in a Flash Article | June 14, 2019
A company decides to set up a retirement plan. You may not need the U.S. Department of Labor (DOL) to tell you that establishing a new plan must be paid by the would-be plan sponsor and not with plan assets. After all, how can a plan not yet in existence and with no assets pay for anything?
Overpayments…If it Comes Back, it Is Yours
Solutions in a Flash Article | May 2, 2019
An Employer decides to sell off its division in San Diego effective January 1st. The Buyer accepts a spin-off of the Employer’s 401(k) Plan’s assets related to the San Diego employees’ benefits into its plan as of the close of the deal. The Employer completes its required annual ADP testing and reports to the Buyer that there are refunds due to certain highly compensated employees (“HCEs”). The Buyer is cooperative, relays this information to the HCEs, and issues the distributions before March 15th like a good pension citizen. On April 1 st, the Buyer gets a call from the Employer. There has been a mistake and the ADP testing actually didn’t fail as badly as they thought. The refunds were too much. Now the Buyer has to deal with overpayments.
It’s All Fun and Games Until a Loan Defaults
Solutions in a Flash Article | March 14, 2019
Saving for retirement is the responsible thing to do, but what happens if you need a little extra dough and the only “cash” you have is in your retirement account? A common feature many retirement plans have is participant loans. This sounds like a great idea to encourage employees to save for retirement by giving them a way to access their money if they need to. That’s the theory, anyway … until something goes wrong.
Identity Theft: The Rising Threat to Retirement
Solutions in a Flash Article | February 8, 2019
The day starts as any other. A distribution form comes in for processing. It has a participant signature. The spousal consent section is completed and notarized. The Plan Administrator has signed the form. No problem. So, you process the $450,000 in-service distribution and give it no further thought. Three days later, the real participant calls in a panic wondering where his money went. Yikes?
As a third party administrator (TPA), what can you do to help thwart this brazen, growing band of thieves? Do you have an obligation to do anything? What if your firm is acting as an ERISA 3(16) delegated fiduciary? Lot of questions, but we have no concrete guidance from any federal agency.
Who’s Got My Beneficiary Designation … Or Who Lost It?
Solutions in a Flash Article | January 7, 2019
We are seeing situations arise with retirement plans that are likely to become more common in the future. And, we are worried about who will be holding this hot potato when the music stops.
The issue that concerns us is: who is keeping track of participants’ beneficiary designations? Over the years, these forms are supposed to be handed out to participants, and participants sometimes return them … and then what happens? When plans and participants were younger, it is likely that no one paid these important forms much attention – after all, no one was going to die, right?! But, with the workforce aging and plans maturing, it will be increasingly important that designations are retained somewhere so that the participant’s named beneficiaries get what is coming to them.
Required Minimum Distributions
Solutions in a Flash Article | November 30, 2018
Bob is the owner of one of your best clients. You’ve known Bob for years. You attended his 65th birthday party last year. Every year, you send census information to Bob for verification and request the data you need to prepare his plan’s filings. Bob’s company has grown enough to warrant an HR director, and this year, Jan verifies the census data. When you get the census back from Jan, you realize that Bob’s birth year has changed to 1946. You call Jan immediately to check on this and learn that it’s just as you feared: Bob lies about his age and is actually 72. His diligent use of sunscreen lets him fool most people, but the IRS won’t be so easily tricked.
Solutions in a Flash Article | October 16, 2018
As we approach Halloween, let’s take a look at a real nightmare of a topic. While the consequences of rehiring an employee may not be comparable to Michael Myers stalking you, it can raise a new set of concerns you may not have expected. In addition, the rules relating to rehires can be very complicated to navigate. We’re here to help you understand these complex rules. Whatever you do, don’t let rehire issues sneak up on you in the dark.
Whoops! Deferral Errors!
Solutions in a Flash Article | October 1, 2018
Administering a 401(k) plan is not an easy job. Two common errors that plan sponsors make with elective deferral (also known as salary deferral) contributions are when they fail to implement an employee’s election (so that intended deferrals are not made), or they process the election incorrectly so that the wrong amount is withheld from the employee’s paycheck and deposited to the plan.
Late Remittances and Lost Earnings
Solutions in a Flash Article | October 1, 2018
Late remittances of salary deferrals and loan payments (“participant contributions”) are almost a fact of life. They can happen to anyone, regardless of the size of the company. They occur for a variety of reasons. Sometimes, there is a change in plan management that causes a delay, sometimes it’s just human error, and sometimes employers don’t even know there is a deposit deadline. Regardless of how it comes about, however, late remittances are simple to correct.
Earnings: When and How To Calculate
Solutions in a Flash Article | October 1, 2018
To err is human, to calculate earnings – less than divine. Many of us love to default to the U.S. Department of Labor’s (DOL) Online Calculator. It’s simple. It’s elegant. And, if we’re being honest with ourselves, the end result tends to be much cheaper than the alternatives. But, despite the undeniable gravitational pull towards the Online Calculator, it is important to understand when, and how, it should be used and what the alternative requirements are.
When Do TPAs Really Have Ethical Dilemmas?
Solutions in a Flash Article | July 17, 2018
You may or may not be part of an organization like NIPA, ASPPA, ACOPA, a state Bar, and the like, but odds are that your job is covered by one or more governing Codes of Conduct/Ethics. As a preparer of certain tax forms, such as the Form 5500, you are likely subject to the ethical rules that apply those who practice before the IRS, Circular 230. Certainly, if you have a Preparer Tax Identification Number (“PTIN”) or your ERPA designation, you need to get acquainted with the requirements of Circular 230. While Circular 230 is not necessarily a “page-turner” worthy of binge reading, it is important for you to be familiar with your obligations to your clients and colleagues.
The Eligibility Conundrum
Solutions in a Flash Article | July 17, 2018
Eligibility failures can happen in many different ways and for many different reasons. That’s the fun of human beings – we are a unique and creative lot. Accidental exclusions can occur because of a misunderstanding as to the age and service provision that’s actually in the plan document or it could be even broader and an entire class of employees get excluded (how ‘bout them part-time and seasonal employees?). There are also the occasional oopsies that seem to affect only a single employee that fell through the cracks or more nefarious ‘accidents’ involving people the HR Director didn’t like. The only real reason to understand why the eligibility failure happened is to make sure that procedures are tightened up to make sure it doesn’t happen again.
Solutions in a Flash Article | July 17, 2018
Another March 15 has come and gone and you’re returning to the office refreshed. You check your email to find this alarming message from your client, Taylor, the director of HR: “Our auditor is telling us we’ve been using the wrong compensation in our plan. We paid a bonus to several participants in 2014 and didn’t take out deferrals. Now we’re being told this money should have been included in calculating deferrals and the matching contribution! How do we fix it?”