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      Resource Center

      Retirement Plan Compliance Is a Team Effort: Are You Sure You Understand All of the Players' Roles?

      Retirement plan management is a team effort. In the past we've written about the roles of your in-house team (see, "Make Sure Your 'In-House' Benefits People Understand Their Responsibility And Liability," link right). Today we direct your attention to the roles of two key team members – the CPA and the TPA – and the plan sponsor's own role as team manager.

      Too often, plan sponsors view their CPAs and TPAs as the primary lines of defense in ensuring plan compliance with the retirement plan tax qualification rules. There are common misperceptions about the scope of services that their TPAs and CPAs are contracted, or even trained, to provide. That lack of understanding opens gaps in plan management (the plan sponsor's responsibility) that can lead to a myriad of compliance failures.

      "Never Mistake Activity For Achievement." John Wooden

      Or in the case of plan management activity, don't mistake activity that is meant to accomplish one goal with accomplishing others. One example of a problem caused by misunderstanding plan management responsibilities is the failure to recognize that a partial plan termination has occurred (see "A Question Of Vesting – Determining If Your Plan Has Suffered A Partial Termination," link right). When we've discussed with plan sponsors the possibility that their plans may have suffered partial terminations due to higher than normal layoffs, they have told us that, if a partial termination had occurred, their TPAs or even CPAs would have pointed it out. When we've discussed this issue with TPAs and CPAs, most tell us that they don't have the information necessary to make that call. The result of an unidentified partial plan termination could be an excessive, unanticipated expenditure when a business can least afford it, or plan disqualification.

      Another example is relevant to plans that require an accountant's report to accompany the Forms 5500. Just because an accountant may be good at auditing some aspect of your business does not necessarily mean that the accountant's audit of your plan is appropriate. Be wary of accountants who say things like, "Retirement plan audit? Never done one but we're happy to give it a try."

      How do plan sponsors avoid these types of errors? By understanding exactly what services their consultants provide, and just as importantly, what services they don't. Diligent, effective CPAs and TPAs are valuable team members. Make sure you understand and are able to support them in their drive to assist you with successful plan management.

      "It's Not My Job To Motivate Players. They Bring Extraordinary Motivation To Our Program. It's My Job Not To De-Motivate Them." Lou Holtz

      There may be no more misunderstood contributor to the benefits team than the TPA. The TPAs we know are motivated to serve their clients well; however, no one can be motivated (or should be motivated) to perform a service that they aren't trained to do, paid to do, or liable for. So it's important to understand exactly what the TPA's function and responsibilities are and rate their services based on realistic expectations.

      • Understand that TPAs work on a plan year basis. TPAs focus on the plan year just ended. They are tasked with collecting data sufficient to allow them to perform year-end testing (such as ADP/ACP testing), performing the testing, and preparing the Form 5500 for the plan for that year. Therefore, it is unlikely that the TPA would spot a compliance issue like a partial plan termination if the analysis requires at looking events over the span of more than one plan year.
      • Know what's in the service agreement. While your TPA may be able to assist you with compliance problems that you call them about, they are not necessarily aware of compliance problems that they have not been contacted about. For example, their service contracts will likely not say anything about analyzing or spotting partial termination events. Be sure to review the fine print in your administrative services contract.
      • Don't transfer potential mistakes from your former TPA to your new TPA. If you left your former TPA because of errors they made, explain your reasons to the new TPA. It is not unreasonable for your new TPA to assume that the work of a predecessor TPA can be relied upon and generally their contract will provide indemnification from previous noncompliance issues.
      • Don't assume that a prototype document will meet your particular retirement plan goals. Most TPAs use preapproved or prototype documents for their clients. In many instances, prototype plan documents do a poor job of reflecting (i) special effective dates, (ii) special treatment for certain employee groups, (iii) the provisions that are applicable to non-ERISA plans (i.e., governmental or church plans), (iv) employers that engage in business transactions, and (v) plan mergers or similar benefit changes.
      • Understand what information the TPA is working with. An increasing number of TPAs are trained to assist in the administration of your plan by reference to an electronic "summary" of the plan. Make sure that your plan summary is up to date or contract to have your TPA work with the entire plan document.
      • Don't provide the TPA with incomplete or inaccurate information. Some employers filter their employee census information to eliminate employees who they do not believe are eligible to participate in the plan before they send the information to their TPAs. Let the TPA do its job in reviewing your census and assisting you with such determinations. Also, make sure that the compensation that you are reporting to the TPA agrees with the plan's definition of compensation. Get your payroll department involved in this process as well so that everyone is in sync.
      • Don't assume that you know what's expected of you. Ask questions. When you receive questionnaires and checklists from your TPA, make sure you've received adequate instructions for completion and that you've discussed what the follow-up will be. For example, because a 20-page controlled group/affiliated service group questionnaire sent to one client was not properly completed, the client's "single-employer plan" turned out to be a noncompliant multiple-employer plan.
      • Understand that plan documents requiring signatures must be timely signed and executed, and that not all TPAs may follow up to assure you have done your job. Understand that backdating is illegal and can result in plan disqualification and perhaps even litigation by a participant, for more information, see "Crime And Punishment – The Civil And Criminal Consequences Of Mishandling And Backdating ERISA Benefit Plans".

      "If Winning Isn't Everything, Why Do They Keep Score?" Vince Lombardi

      Winning actually is everything when it comes to plan compliance. But the "score" being kept by the CPA in a plan audit as part of the preparation and filing of Form 5500 is not a compliance audit. So, don't confuse one with the other. While an experienced and diligent auditor will do some sampling to review the general levels of compliance in certain areas, the audit is not intended and should not be viewed as a "stamp of approval" or even an indication that the plan is fully compliant with the applicable tax code and ERISA rules.

      "A Coach's Greatest Asset Is His Sense Of Responsibility…." Knute Rockne

      It is not always fair or appropriate to lay the blame for plan compliance failures at the door of your CPA or TPA. If you've hired reputable consultants, it's likely they're doing the job they were hired to do. It's up to the plan sponsor to assure the plan's success. Here are some reasons why a plan sponsors seem to drop the ball:

      • Most plan sponsors don't really understand their retirement plans. As a result, they must rely on several advisers and consultants. Be on the lookout for this situation. The single biggest category of compliance failure is the "failure to follow the terms of the plan." Obviously, this failure is much more likely to occur where the employer has never read through the entire plan document. Have you?
      • Most employers don't appreciate the concept of an unresolved plan qualification failure. When they learn of a failure that occurred several years ago, they invariably say, "that happened years ago, we don't have to do anything about that now, do we?"
      • Many employers don't understand the types of plan-related records they need to keep and the duration of record retention. It is just as important to keep a record of why certain plan changes were made (i.e., board minutes and administrative policies) as it is to keep copies of the Forms 5500. Depending on the type of plan you have, you may need to keep records relating to eligibility for and the calculation of plan benefits for several decades.

      "Failure Is Not Fatal, But Failure To Change Might Be." John Wooden

      If any of this sounds familiar to you, then now is a good time to gather your retirement plan team (that is, your in-house and outside team members) to discuss these issues, clear up misunderstandings about roles and responsibilities, and get everyone on the same page in terms of what it takes to keep your plan moving forward and out of trouble.