Most companies will offer some kind of qualified retirement package to their workers and when they do this, they’ll also have to have ERISA compliance because they’ll fall under the governing rules of the ERISA ACT of 1974. ERISA establishes minimum standards and guidelines designed to protect workers in the private sector that participate in welfare and retirement benefits plans.

Business operations that aren’t ERISA compliant and still offer qualified retirement plans can potentially be subjected to some costly fines and penalties.

If the employee retirement package you’re on allows for one to defer their retirement earnings or provides you with future retirement income, then it’s an ERISA plan.

Employers that provide such plan benefits are considered ‘named fiduciaries’ by ERISA. This means that they take the responsibility of administering the plan as well as the liability should the plan not comply with the standards, rules, and regulations established by ERISA.

Understanding ERISA Compliance 

Meeting these compliance requirements doesn’t have to be as burdensome as some tend to make It out to be and can help you avoid an audit.

While there are several different requirements, good 3rd party administrators can effectively manage a lot of the burden.

Most of the requirements are often calendar-driven, which means having to fill forms and documents by specific deadlines.

The deadline dates usually form one checklist that your human resource staff or third-party administrator can manage. Other requirements are met as circumstances dictate and are ad hoc in nature.

Ongoing ERISA Requirements

A few ERISA requirements are ongoing and are triggered by occurrences or are part and parcel of the plan’s administration. Hereinbelow are a couple of the most common guidelines and notifications that must be followed by businesses that comply with ERISA:

• Annual Participant Fee Disclosure: All beneficiaries, terminated employees and plan-eligible employees that have an account balance are entitled to a participant fee disclosure that is to be handed out every twelve months.
• Adherence to Plan Document: This is to make sure the plan management adheres to the terms of the plan document every step of the way. The IRS considers it an operational defect when there’s any failure to follow the terms of the plan document, which can result in the disqualification of the whole plan if not remedied
• Opportunity To Enroll: All workers that have met the plan service and age requirements are entitled a chance to enroll. This is an opportunity that must be given to them. They should be provided with all the necessary instructions and forms alongside Summary Plan Descriptions as well as any other applicable participant forms and notices.
• Notice of Plan Change: All participants should be informed of any plan changes within 30-90 days before the change’s effective date.
• Loan Compliance: This is to make sure that outstanding loan payments are being settled in accordance with the terms of the plan. It also ensures the promissory note of the borrowers.
• Conducting Quarterly Housekeeping: This is where the terminated employees’ small account balances are cashed out, loan defaults are processed and any unallocated forfeitures are used.

ERISA Calendar Checklist

401(k) plan administrations involve the performance of certain compliance tasks that have to be in accordance with an annual schedule. The most common tasks all companies should have on their checklist include:

• The First-Quarter Plan- Providing participants with fourth-quarter benefit statements, no later than forty-five days after the quarter’s end. Ensure to make prior-year worker contributions for the tax deductions to be counted in the prior year. 

• The Second-Quarter Plan- Providing plan participants with first-quarter benefit statements. Distribution of the excess deferrals made in the previous year. For the participants turning 72-years-old, distribute the required minimum distributions for first-year.

• The Third-Quarter Plan- Providing them with second-quarter benefit statements. Filing of Form 5558 or form 5500. If any modifications were made to the plan document during the previous year, distribute fresh, new Summary Plan Descriptions to participants

• The Fourth-Quarter Plan- Providing participants with third-quarter benefit statements. Sending of applicable notices to plan participants, automatic enrollment or Qualified Default Investment Alternative and changes to or installments of safe harbor 401(k) packages.

The Plan Document

Employers that decide to provide their workers with ERISA compliant plan benefits are required to write all these benefits down on a plan document. This document will contain the plan’s policy terms as well as the plan’s administration and operation.

ERISA plans can still exist even though it lacks a plan document. Not having one just translates into the document not being ERISA compliant.

ERISA doesn’t require for your document to look a certain type of way and has no set specific document format. The type of document that you intend on coming up with will mainly depend on the overall plan type, in general, as well as how complex the benefits are.

When you insure an ERISA plan document, the insurance certificate for the insurance company will usually contain detailed benefits data. But, in most scenarios, the certificate won’t have all the necessary provisions needed for an ERISA compliant plan document. For instance, while the insurance certificate might have a detailed benefits schedule, it may not touch on termination and plan amendment processes.

A great way to supplement the insurance certificate is by using something known as a “wrap document” which has the ERISA provisions that happen to be missing. This document has been given this name because it literally wraps around the insurance certificate eventually forming a single, ERISA compliant plan document.

What to Keep in Mind

Under ERISA compliance, the defined contribution plan administrator will need to provide plan participants with benefit statements when required. Depending on the scenario, these statements are to be provided annually, quarterly or upon participant’s written request.

Those criticizing the new ERISA rules and compliance argue that the required disclosures may end up leading to confusion among plan participants. They also question how employers will determine their income projections. For now, though, everything looks to be moving as smooth as ever and no hiccups just yet.

Hopefully, this article has shown you how you can follow these guidelines and avoid getting audited. If you’re reading this just a bit too late and our facing an audit, contact us today to learn about how we can help represent you.