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Retirement Doctor: Fiduciary and Compliance Mistakes

Jul 24, 2018 2:43:43 PM / by Mike Rogers

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Fiduciary and Compliance Mistakes in 403(b) Plans

The IRS, DOL and Auditors, have published the list of the top compliance issues they find in 403(b) plans. The list is rather lengthy but here are the top 5 items the Filice team has come across while conducting recent fiduciary audits:

 

1.       Universal Availability Issues: Unlike 401(k) plans there are very few exceptions and most employees must be allowed to at least defer their own dollars. The three biggest mistakes we see are:
a. Excluding “part time” employees without using or having the 20-hour rule in the plan document. No document should use the phrases “part time” or “full time” in 2018.
b. Using a waiting period before employees are permitted to defer. It is ok to have a waiting period for employer contributions but not for employee deferrals. 
c. Failing to have “proof documents” for employees who were notified but declined deferral opportunities, if you are still using paper forms.

2.       Plan Loans that Violate IRC Section 72(p): Failure to make timely loan repayments, defaults not noticed or treated properly, and loans from multiple vendors that, in aggregate, exceed the maximum limits. Managing the loan provisions is a fiduciary function for 403(b) plans.

3.       ERISA or Non-ERISA: Being a Non-ERISA plan has appeal, especially around not having to file a form 5500. Although an employer contribution to a 403(b) does make that plan subject to ERISA, the actual test is employer control over the plan. Employers signing off on loans, distributions or hardships are “control” in the eyes of the IRS. More importantly, limiting investment choices, especially if using a single vendor is deemed to be control.

4.       No Discrimination Testing: All Matches and other types of employer contributions are subject to non-discrimination rules. In addition, total plan contributions and individual limits are subject to maximum limits and should be verified each year.

5.       The Definition of Compensation in the Plan Document is Not Followed:  Commissions, bonuses, overtime, 403(b) deferrals, 125 plan contributions, do they count? The plan document will define pay for plan purposes. Failing to follow the terms of the plan document is a fiduciary breach.

     Let the Filice team provide a complimentary fiduciary and compliance review and assessment  of your plan to determine how you would stack up in the eyes of the IRS and Department of Labor.

Topics: 401(k) plan, 401(k) plan sponsor, Fees, 401(k), best practices, ERISA, Audit

Mike Rogers

Written by Mike Rogers

Mike is an industry veteran with 30 years of experience in every aspect of retirement planning, including registered investment advisory, third party administration, and record keeping. His list of credentials is as extensive as it is impressive: Qualified Pension Administrator (QPA), Qualified 401K Administrator (QKA), Certified Pension Consultant (CPC), Qualified Pension Financial Consultant (QPFC), Accredited Investment Fiduciary (AIF®), Tax Exempt and Governmental Plan Consultant (TGPC), Certified Behavioral Finance Analyst (CBFA), Professional Plan Consultant (PPC), Global Fiduciary Strategist (GFS). Mike is also a former member of the Schwab SRT Technologies Advisory Board, Schwab TPA Advisory Board, and Fidelity/IBG Advisory Board.

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