Employee Benefits Law Group often works on retirement plans that have been in place for years and we know that simply making sure a plan is up to date is not enough.
We look at a plan’s “foundational basis.” If the underlying plan design, tax assumptions and fiduciary structure—the plan’s foundation—are not solid, the plan will have ongoing problems.
Here are some steps we take to ensure that plans are working correctly:
- Identify the nature and extent of the plan sponsor. Benefits counsel often assumes that this was done when the plan was set up, but an error here can be costly. We examine or confirm things like:
- Whether the plan sponsor is a “governmental” or “church” sponsor.
- Whether the plan is subject to ERISA and if it’s consistent with its ERISA/non-ERISA status.
- Whether the plan sponsor is part of some larger group of employers or entities that must be considered as a whole for plan design and testing purposes.
- Check tax and status assumptions. We’ve seen a lot of bad assumptions over the years, and those assumptions can be costly. Some of the most common include:
- Public agencies with 403(b) plans that they are not eligible to maintain.
- Public agencies with 401(k) plans that they are not eligible for.
- Tax-exempt employers with deferred compensation plans that do not comply with the tax rules of Internal Revenue Code section 457.
- Check and confirm the plan’s fiduciary structure. Many plans, particularly large and well-established ones, tend to carry on the way they have for years with a perception that all is well. It can be problematic if no one has thoroughly analyzed the plan’s fiduciary structure and the functioning of its plan administrator. Plan documents often reveal that the “employer” is named as the “plan administrator” with no evidence that this responsibility has been delegated appropriately to an administrative committee or individual. If the plan document says the employer is the plan administrator, potential plaintiffs and regulators will come after the entity’s governing board, which almost never functions as the administrator of the plan.
- This situation can be fixed with proper documentation and training. And you need to make sure the governing body and the team that functions as the day-to-day plan administrator knows what it means to be a plan fiduciary.