ERISA Compliance: Essential Insights for Employers
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Understanding ERISA: A Primer
Employers have a responsibility to stay informed about ERISA regulations and promptly inform participants of any changes to prevent incurring hefty fines from the IRS.
If your organization provides a retirement plan for its workforce, it likely falls under the ERISA framework. This legislation sets forth essential guidelines and minimum standards designed to safeguard employee welfare regarding retirement benefits. Organizations that fail to comply fully with ERISA provisions risk incurring substantial penalties.
If your employee retirement plan is designed to offer future income or allows workers to defer earnings for retirement, it qualifies as an ERISA plan. As an employer offering these benefits, you and any appointed fiduciaries are tasked with managing these plans according to ERISA's stipulations. These fiduciaries also share accountability if the required standards are not upheld.
Navigating ERISA Compliance
While the requirements of ERISA may seem overwhelming, partnering with a competent third-party administrator (TPA) can significantly lighten the burden. Most compliance obligations revolve around timely filing deadlines. Some deadlines can be tracked with the help of a TPA or HR staff, while others must be addressed as specific circumstances arise.
Annual ERISA Compliance Checklist
To ensure compliance, organizations should incorporate the following tasks into their yearly schedule:
First Quarter
Ensure that employees receive their fourth-quarter benefit statements within 45 days following the quarter's conclusion. Contributions made by the employer in the previous year can be deducted from last year’s taxes.
Second Quarter
Distribute first-quarter benefit statements to plan participants. Additionally, return excess deferrals to employees who exceeded the IRC Section 402(g) limit and provide required minimum distributions (RMDs) to participants who turned 72 in the past year.
Third Quarter
Distribute second-quarter benefit statements. File Form 5500 or Form 5558 for a 2.5-month extension regarding the previous year. If there were changes to the plan document in the past year, a new Summary Plan Description must be provided to participants. A Summary Annual Report from the prior year should also be distributed.
Fourth Quarter
Provide third-quarter benefit statements and send necessary notices to participants, including updates on safe harbor 401(k) plans, Qualified Default Investment Alternatives (QDIA), or automatic enrollment changes. Additionally, correct any issues to prevent failures in ADP/ACP testing and the associated 10% excise tax.
Key ERISA Requirements
ERISA mandates ongoing compliance and adherence to triggered events. Here are the most significant notifications and guidelines that compliant firms must follow:
- Follow Plan Document Terms: Any deviation from the terms specified in the plan document may be seen as an operational error, risking plan disqualification if not corrected.
- Annual Fee Disclosure: All eligible employees, including those who have left the organization and beneficiaries with account balances, must receive a participant fee disclosure annually.
- Notify Participants of Changes: Any alterations to the plan must be communicated to participants at least 30–90 days before implementation.
- Enrollment Opportunity: Eligible employees should be given the opportunity to enroll, along with the necessary paperwork, Summary Plan Description, and other pertinent notices.
- Loan Compliance: Ensure loan repayments are collected according to the plan's policy and the borrower's promissory note.
- Timely Deposits: Employee deferrals and loan payments should be deposited on schedule, usually coinciding with payroll tax deposits.
- Quarterly Maintenance: For terminated employees, cash out small account balances, manage loan defaults, and address any unallocated forfeitures.
While a TPA can typically manage these requirements, it remains the employer-plan sponsor's fiduciary responsibility to verify proper execution.
Conclusion
Maintaining ERISA compliance is crucial for protecting employee benefits and keeping a retirement plan in good standing with the IRS. Employers should stay abreast of all ERISA regulations and ensure that their HR teams or TPAs are fulfilling all obligations. Additionally, documenting and communicating any plan changes to participants promptly will help maintain compliance with ERISA guidelines and avoid costly IRS penalties.
Consult Your Financial Advisor
Your financial advisor can assist in formulating an ongoing compliance strategy tailored to the unique needs of your workforce and organization. This ensures that your retirement program remains compliant and effectively protects the interests of plan participants.
The first video titled "ERISA 101 Compliance Training Series: ERISA Overview" provides a foundational understanding of ERISA, outlining its significance for employers and employees alike.
The second video, "Overview of the Employee Retirement Income Security Act: Module 1 of 5," delves deeper into the specifics of ERISA, breaking down its components and compliance requirements for employers.