DOL Extends 408(b)(2) Regulation

By Yariel Chiong

The Department of Labor (DOL) has once again delayed the deadline for 408(b)(2) in order to provide covered service providers more time to adhere to the new rules. Although the delay is beneficial to service providers it is not helping plan sponsors find out what fees they are being charged for their plan. The 408(b)(2) rule originally had an effective date of July 16, 2011 was later moved to January 1, 2012. The new extended deadline for the regulation is April 1, 2012.

Plan sponsors should know what they are paying for services now. It is in their best interest to start having conversations with their service providers and find out exactly what fees they are being charged and what services are being provided. Clients of ACI have the advantage of already knowing what we are charging them. ACI has been a front runner in disclosing all fees to our clients; they will not be shocked by hidden fees that other firms will be disclosing to their clients come April 1, 2012. Don’t wait until the deadline to find out from your covered service providers what you are being charged.

If you are an advisor, have these conversations with your clients now. Be part of their solution.

Don’t leave any extra money on the table for Uncle Sam

By Yariel Chiong & Tobi Cogswell

The Internal Revenue Service (IRS) requires qualified retirement plans to undergo different compliance tests depending on the type of plan. For 401(k) plans one of those tests is the ADP/ACP test, which stands for actual deferral percentage/average contribution percentage. The purpose of the test is to determine if there is discrimination against non highly compensated employees (NHCE’s) in favor of highly compensated employess (HCE’s). The HCE’s are normally any greater than 5% owners and anyone who earned more than $110,000 in the prior year (this amount is indexed each year).

ADP/ACP tests are run annually, but you may wish to run an “interim”, or snapshot test that will tell you if you need to reduce the HCE deferrals for the rest of the year. It may also tell you if the HCE’s can increase their deferrals. Why leave a single dollar undeferred and subject to tax by Uncle Sam.

For example: A 401(k) plan that has 12 NHCE’s and 5 HCE’s.

As of 6/30, the actual deferral percentage for the 12 NHCE’s is 2.4% (participation has been poor).

The actual deferral percentage for the 5 HCE’s is 3%. They’ve had test failures in past years so they are deferring very small percentages.

Based on this example, the HCE’s could actually be putting in up to an average of 4.4%, yet they are at 3%.

There are ways to increase percentages closer to the end of the year with change dates, amendments to allow special deferrals during the month of December and so forth. But as we end June, now is the perfect time to do an interim test for calendar year plans.

Most TPA’s and bundled recordkeepers do charge for an interim test. The plan sponsor needs to weigh the cost of the interim test against the planning opportunities of allowing their HCE’s to put more money away in their retirement plan. Contact your consultant or administrator for more information on performing an interim ADP test.

ASOP #41 - Fact, Not Fable

By Pat Byrnes, MSPA, EA, MAAA

The actuarial profession has a common Code of Conduct, an Actuarial Board for Counseling and Discipline (ABCD) and an Actuarial Standards Board (ASB). One of the ASB’s Actuarial Standards of Practice (ASOP # 41) is entitled “Actuarial Communications.” It went into effect in May 1, 2011 and covers all forms of actuarial communication (including emails and verbal conversations). The goal of ASOP #41 is to provide guidelines for clear communication and to acknowledge that “communication is an ongoing and interactive process.”

ASOP #41 may change the process that actuaries follow, the amount, or format, of materials we communicate to your clients. The goal is to have our Plan Sponsors be better informed throughout the year of the status of their Defined Benefit or Cash Balance plans. We are committed to do this at the least possible cost.

ACI is a pro-active firm, dedicated to protecting your clients while positioning them for a great retirement. ASOP #41 compliance is a perfect example of this. Please call us should you have any questions.

Not properly reviewing your Form 5500 can lead to big penalties

By Yariel Chiong

Have you ever read the statement above the signature line on your Form 5500? It says:
“Under penalties of perjury and other penalties set forth in the instructions, I declare that I have examined this return/report, including accompanying schedules, statements and attachments, as well as the electronic version of this return/report, and to the best of my knowledge and belief, it is true, correct, and complete.”

If you are signing the form it is ultimately your responsibility that it is correct. That is why it’s important that your third party administrator (TPA) or whoever is preparing the form, sends it to you for signature with plenty of time for your review You must do your part by providing them with complete and accurate census when requested.

Poor preparation on behalf of your preparer is not an excuse that the government will accept. Ensure that you have properly reviewed the 5500 and accompanying schedules and are confident in it. Ask questions. If you are currently not an ACI client you can contact us for a limited review of your Form 5500 by one of our highly experienced staff.

Some background on the Form 5500:
The Form 5500, Annual Return/Report of Employee Benefit Plan, including all required schedules and attachments must be filed by the 7th calendar month after the end of the plan year unless a Form 5558 is filed and received by the Internal Revenue Service (IRS) before the due date. This will give you an additional 2 ½ months to file the form without penalties. So for example, if your plan is a calendar year end plan your Form 5500 will be due August 1, 2011 since July 31, 2011 lands on a Sunday this year. And if a Form 5558 is filed for extension, your Form 5500 will be due October 17, 2011.

All plans filing on or after 01/01/2010 are now required to be filed electronically through the Department of Labor’s Employee Benefits Security Administration (EBSA) website www.dol.gov/ebsa.

Penalties:
If your form is late, IRS penalties are $25 per day up to a maximum of $15,000. Department of Labor (DOL) penalties can be up to $1,100 per day with no maximum. In addition, for willful violations on your Form 5500, individuals can face up to $100,000 fine and/or imprisonment up to 10 years.

What to do?:
Ask questions! Do not sign and submit the forms until you are satisfied with the answers. If you have any questions for which you cannot get answers, call us!

New 408(b)(2) Compliant Engagement Contracts Will Expose the Industry’s Hidden Fees

By Yariel Chiong 
With the Department of Labor’s (DOL) regulation coming into effect this January 1, 2012 ACI has revisited its engagement contract to go above and beyond the requirements set by the DOL 
 

With the passing of 408(b)(2), plan sponsors will for the first time know what their third party administrator (TPA) and other vendors to their retirement plan have been keeping from them in revenue sharing or hidden fees. ACI has been an industry leader disclosing all fees and distributing revenue sharing to clients for some time now. ACI discloses indirect and direct compensation to its clients, returning 80% of revenue sharing to clients, keeping 20% only to offset the cost of the accounting required to distribute the monies.
 
As a “responsible plan fiduciary” you must ensure that you review and understand all vendors’ contracts raising any questions you may have to them. Vendors are required to send you a 408(b)(2) compliant agreement contract which among various other things must:


1. Clearly describe the services provided to you


2. State all fees charged to the plan sponsor


3. Disclose any direct and indirect fees received


Click here for a link to the Spring Issue of The ASPPA Journal for more information on what you should find in your service agreement from your Third Party Administrator.

ACI has been certified with CEFEX for the last 3 years and currently holds the Service Provider Seal mentioned in the article. As a responsible fiduciary, working with a certified TPA makes sense. You can rest assured that your agreement goes above and beyond the DOL’s requirements and that your plan will not become disqualified. Contact us to find out more information or to have an in-depth review of your plan.

ACI "Boot Camp" keeps your retirement skills sharp

By Yariel Chiong

Just in time to get your retirement skills fit for summer ACI is holding its May seminar “Boot camps.” Our next seminars will be on Wednesday, May 18th at our Torrance office. Don’t miss out on these very popular seminars, seating is limited. To sign up contact Yariel Chiong @ Yariel.Chiong@acibenefits.com to register. CPE credit is available.

ACI regularly holds both “Annual Plan Basics” and “401(k) Plan Basics” seminars in 1 action packed day. Here attendees will find out about the newest IRS and Federal regulations, hot water issues which can disqualify their plan or lead to costly corrections and a behind the scenes look at what exactly a Third Party Administrator (TPA) does every day for your plan or client.

These seminars are led by 2 of our top “Drill” instructors with a combined 36 years of experience in the industry. You are guaranteed to leave these seminars with a better understanding of how annual plan administration and 401(k) plans work. Previous attendees or “recruits” have had great things to say about the seminars, “The presentations and material were given at a very good pace. The real-life examples used based on the years of experience in 401(k) plans were entertaining and very beneficial in explaining key points.”

Contact Yariel Chiong @ Yariel.Chiong@acibenefits.com to register. Be sure to include the date of the seminar, name, company, title and email address.

For additional information visit our website at http://www.acibenefits.com/sections/library/speeches-and-seminars.html

It's Bond...Fidelity Bond

By Yariel Chiong

Qualified Retirement Plans generally have two types of bonds that are required: (1) the Employee Retirement Income Security Act (ERISA) bond commonly known as a fidelity bond and (2) the small plan filer bond. The bonding requirements may be satisfied with one bond. Two separate bonds may have to be purchased if the surety company will not issue one bond that exceeds the $500,000 bonding limit of the ERISA bond.

ERISA requires employee benefit plans to be bonded. The amount of the bond may not be less than 10% of the amount of funds being handled and need not be greater than $500,000. However, the maximum liability increases to $1,000,000 if the plan’s assets are invested in securities of any sponsor or contributing employer. If a plan sponsor files a Form 5500-EZ you are not subject to any bond.

The small plan filer bond is required if less than 95% of the plan's assets are invested in "qualifying plan assets" and the plan sponsor does not want a written opinion from an independent qualified public accountant. The amount of this bond may not be less than the value of the plan assets which are not qualifying plan assets, without regard to the bonding limit described above.

Qualifying plan assets are any of the following types of investments: (1) qualifying employer securities, (2) participant loans, (3) assets held by a regulated financial institution, (4) registered mutual funds, (5) investments and annuity contracts issued by an insurance company, and (6) assets in participant-directed accounts.

It is important to point out that fiduciary liability insurance is not the same as an ERISA bond. An ERISA bond is required and protects the plan against fraudulent or dishonest acts on the part of fiduciaries or persons who handle plan funds. Fiduciary liability insurance is not required and does not protect the plan from fraudulent or dishonest acts. Fiduciary liability insurance does protect the fiduciaries from liability occurring by reason of other than fraudulent or dishonest acts. However, fiduciary liability insurance must permit recourse by the insurer against the fiduciaries.

It is important for fiduciaries to verify they have the proper amount of coverage. It may take a single or multiple bonds to comply with current Department of Labor (DOL) guidance. Ask your ACI administrator or consultant to review if you are ERISA compliant. The U.S. Treasury Department published an updated list of approved surety bond providers. You can access the approved list by visiting: http://www.fms.treas.gov/c570/c570_a-z.html. If your annual return indicates that you do not have a fidelity bond from a provider on the approved list, you may be contacted by the DOL requesting an explanation.

If your bond was issued by a company who does not appear on the approved list, contact your insurance agent regarding obtaining a bond from an approved company.