Have you scheduled your annual check-up? For your retirement plan, that is. Just like humans, a retirement plan’s “health” functions much better if it has an annual “preventive care” review.
An annual review enables the employer, fiduciary, and/or advisor to proactively identify and address any potential, or actual, “health” issues. Early detection of any issue is always best, as the employer (or appropriate party) can mitigate the damages and costs that might otherwise result if the issue is not addressed, or is not addressed until discovered by a participant or regulatory agency.
Here are a few of the issues that should be reviewed at least annually – and where reviewing such now is a great idea:
Much has been written about the two types of required fee disclosures effective in 2012: (i) the Service Provider Fee Disclosures, and (ii) the Participant Fee Disclosures. However, for purposes of this year’s “Annual Check-up,” the plan’s fiduciaries should ensure that they (a) actually review the Service Provider Fee Disclosures (which should have been received no later than July 1st for contracts/arrangements existing on or before that date), and (b) document such review/process.
Documenting the process is advisable, since documentation of the process is something the Department of Labor will seek, should the plan be audited.
The fiduciaries should also request in writing any information missing from the disclosures, and then if the information isn’t provided within 90 days, the fiduciaries should report the provider to the DOL. In addition, the fiduciaries should determine whether or not to terminate the contract or arrangement (again, all the while documenting such determination).
For the Participant Fee Disclosures, the fiduciaries should ensure that the initial disclosures were made to current participants (no later than August 30th, for most plans), and that the first quarterly disclosures will be timely provided (no later than November 14th, for most plans).
Required Notices – other than Fee Disclosure
Each year, a plan must distribute required notices to participants. The types of notices that must be distributed, as well as the timing of the notices, depends upon the facts, such as who is to receive the notice. Because multiple notices are generally required, reviewing the plan annually helps ensure that all required notices have been, or will be, timely made, or if not made, the annual review helps ensure that any issues can be addressed quickly.
Newly eligible participants must receive a Summary Plan Description (“SPD”) within 90 days of eligibility. The SPD describes, in laymen’s terms, the primary plan provisions, how to claim benefits, and their rights under ERISA.
All participants must receive a Summary Annual Report (“SAR”) within 9 months following the previous plan year-end, or 2 months following the filing of the prior year’s Form 5500, if later. The SAR summarizes the information on the plan’s Form 5500 (which is the plan’s Annual Report).
If a plan is amended, participants must receive a Summary of Material Modifications (“SMM”) no later than 210 days following the plan year in which the amendment was adopted. The SMM explains, in laymen’s terms, the change(s) made.
For a plan with automatic enrollment and/or safe harbor provisions, employees should generally receive a notice at least 30 days before first becoming eligible, and then all eligible employees should receive an annual notice no more than 90 days, but at least 30 days, before the beginning of the next plan year.
For a plan with a Qualified Default Investment Alternative (“QDIA”), where participants direct some or all of the investments of their accounts under the plan, participants should receive a notice at least 30 days before first being able to direct their investments. Annually, all participants should receive a notice no more than 90 days, but at least 30 days, before the beginning of the next plan year.
Willful violations for failure to provide an SPD, SAR, and SMM can be up to $5,000. Failure to provide a notice for automatic enrollment or safe harbor generally results in a loss of certain advantages for such year, some of which are discussed below.
Next time: Considering plan design changes and plan operational "health"