Important Action Items for Your Employee Benefit Plan

The current financial crisis has caused some older workers to postpone retirement due to a drop in the value of their retirement accounts.It has also led to renewed compliance scrutiny.Additionally, a recent Supreme Court case (LaRue vs.DeWolff Boberg and Associates, February 21, 2008) ruled that companies can be held liable if employees lose money in their 401(k) due to negligence.Because of the explosion of 401(k) plans throughout the United States, the consequences of this legal action are potentially far-reaching.

Beware delays.

1.If implementing investment instructions is delegated to a third-party service provider, you need to understand the provider's system for implementing the participant's investment selections accurately and timely.With the increase in paperless transactions, this becomes extremely important.The service provider should notify the participant immediately of all changes in investment selections.
2.The Department of Labor is stepping up enforcement of timely remittance of employee contributions.The law requires employers to separate employee 401(k) contributions from their general assets as soon as practicable, but in no event more than 15 business days after the end of the month in which amounts are contributed or withheld from wages.For small plans, generally plans with less than 100 participants, employee withholding for retirement plans are due within 7 business days.
3.Employers might be tempted, either because of administrative convenience or cash flow needs, to delay contributions.But, in addition to the legal requirement, there is also the risk of harm to the participant's investments.If the contributions are delinquent, these contributions are not being invested timely.With the potential of significant market changes every day, this could cause investment gains or losses.If a loss occurs as a result of delay, it may give rise to lawsuits or, at a minimum, the need to make the participant whole.

Other Items to Consider.
1.For plans which participants have to Opt-In (participants choose to be in or not) update participants' selection annually including those participants which choose not to contribute.
2.For plans which participants have to Opt-Out (participants are automatically in and pay is withheld for 401(k) deferrals unless participant Opts-Out,) make sure you retain completed Opt-Out forms to retain evidence of participants' choice.
3.For Opt-In plans, consider an Opt-Out plan.The government is encouraging plans to become Opt-Out plans by reducing some administrative tests.
4.Given current market conditions consider having a financial planner give a seminar to update participants on their portfolios.
5.Not-for-Profit organizations with 403(b) plans will be subject to filing Form 5500 and are required to have an audit if their plan has 100 or more participants effective for 2009.
6.Check for unused forfeitures and discuss with your tax professional how these can be used such as offsetting matching contribution, profit sharing contribution, pay for administrative fees, etc.
7.Avoid having to make time consuming corrections due to errors in accumulating participant criteria for Benefit Plans.
8.Avoid penalties on plans which are subject to corrective distributions based on excess contributions.Plans need to complete their HC testing and compute and pay the corrective distributions within 2 months of the plan's year end to avoid a 10% penalty.
9.For terminated employees that have less than $5,000 in your plan, consider distributing their funds to them to lower the plan's administrative costs.
10.Prepare census and compliance testing timely.
11.Update files with signed designation of beneficiary annually.
12.For plans with multiple ending dates, review for proper inclusion of new participants.
13.Review computations with matching contributions for correctness.
14.Prepare timely all required Forms 1099R/1096 and Form 945 and remittance of taxes withheld.

Determine Your Audit Need
An audit can provide the documentation that you need to prove compliance with applicable rules and regulations.

1.Companies with 100 or more eligible participants at the beginning of a plan year must have an audit to form an opinion that the financial statements of the plan are presented fairly (ERISA Section 103.) The audit is included with Form 5500 filings.Note the word "eligible" is the key, not participants in the Plan.

Plans with fewer than 100 eligible participants at the beginning of the plan year are considered a small plan for filing purposes.Audited financial statements are generally not required for a small plan filing if specific requirements are met under the small pension plan security regulation.

Types of plans that may require an audit include:
Multi-employer
401(k)
Profit sharing
Health and welfare/VEBA

2.

Make sure that your auditor has experience with 401(k) plans.This is a specialized field.Knowledge of the Department of Labor's requirements is a must.Prohibited transactions, supplemental schedules, and certain footnote disclosures are unique to 401(k) plans.The more an auditor understands the 401(k) field, the more effective that audit will be.

3.Provide the auditor copies of all agreements with third-party service providers.If the plan has reviewed the internal control structure of a service provider, that review should also be provided.In any event, the auditor will need to satisfy himself of the internal control structure of the 401(k) plan and the provider's portions of the plan.This work should be performed before the audit.

4.Finally, before the audit, you should either provide or make sure your auditor has obtained all information and documentation requested.Contracts, investment statements, and participants' files are some of the more common requests.If your auditor does not prepare your 5500 form, they must review it.

Quality audits are very important to the 401(k) plan and your participants' best interests.Take steps now to ensure that you are in compliance!

About the Author

Contact: Leslie Flinn, Director of Marketing, Warady & Davis LLP, Certified Public Accountants & Consultants, one of the top 25

CPA & consulting firms in the Chicago area specializing in employee benefit plan audits.

Contact: Leslie Flinn, 847-267-9600, lflinn@waradydavis.com,

http://www.
waradydavis.com

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