Ask the Experts September 1, 2015

(b)lines Ask the Experts – Best Response to Participants About the Market

“As the market has experienced a downturn,  I am fielding calls from our 403(b) plan participants regarding their retirement plan exposure to the stock market.
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“Are there any best practice recommendations as to how I should respond to such inquiries?” 

Michael A. Webb, vice president, Cammack Retirement Group, answers:       

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The answer to this can be a bit tricky, since the temptation that plan sponsor staff can have is to assist the participants directly, in the interest of optimal employee relations. However, doing so could place the plan sponsor at risk for having provided (or having been alleged by a participant to have provided) investment advice, which can have regulatory or other consequences for a plan sponsor, especially in the environment of a market correction.

Thus, for most plan sponsors, the employees should be directed to a resource OTHER than the plan sponsor for this issue. Fortunately, for many plans, there are typically outside resources to which employees can easily be directed. Many plan recordkeepers include some sort of advisory services as part of their service package, whether it takes the form of actual investment advice, or investor education services that can certainly be of value to participant with market-related inquiries. Personnel who field such inquiries have often addressed many such questions in the past, so they know precisely what to say to participants who express concern over market volatility. In addition, some plans engage independent investment advisers to counsel participants, to whom inquiries can be referred as well. 

In the unlikely event that those resources are unavailable to you, there are many external resources to which you can refer participants, starting with PLANSPONSOR, which has addressed the issue in a number of articles, most recently here and here. However, if you provide any articles to participants, you should be certain to state that such articles are being provided for informational purposes only and should in no way be construed as investment advice. 

The Experts thank you for your timely question!

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
Compliance August 31, 2015

DOL Seeks More than $1.6M in Losses for Profit Sharing Plan

A health care company filed no annual reports, did not perform valuations and took more than $1.6 million in improper distributions in violation of ERISA, the DOL alleges. 

 

Reported by

Alliance Home Healthcare Inc., a Palos Hills, Illinois, home health care provider, faces a suit by the Department of Labor (DOL) alleging that the company, its profit-sharing plan and two of its trustees improperly authorized distributions of $1,601,908 in profit-sharing plan assets, in violation of the Employee Retirement Income Security Act (ERISA).

Trustees named in the suit are Reginaldo Sulit and Dalisay Sulit, the company’s owners and the plan’s two named trustees. Dalisay Sulit is the mother of Reginaldo Sulit.

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Dalisay Sulit, president, and Reginaldo Sulit, secretary/treasurer, allegedly took distributions of more than $1 million, to which they were not entitled, according to the DOL. The suit asserts that these plan withdrawals were not in the best interests of the participants and beneficiaries of the employee benefit plan, as required by the law. The withdrawn plan assets were used for non-plan purposes, including directly benefiting the company.

Alliance Home Healthcare established its profit sharing plan on January 1, 2000. As of December 31, 2006, the last year an annual report was filed, the plan had 127 participants and $1.6 million in assets.

For plan years 2009 through 2014, Reginaldo Sulit and Alliance failed to direct the trustees to perform year-to-year plan valuations or an annual accounting. This meant that Reginaldo Sulit and Alliance did not have updated account information upon which they could accurately calculate individual participant account balances for each plan participant and determine correct distribution amounts for eligible plan participants.

NEXT: Distributions in excess of account balances

From January 1, 2008 through the present, Reginaldo Sulit, as plan trustee, made distributions from the plan. Plan assets were assigned sometimes to Reginaldo Sulit, although he was not eligible to receive plan distributions, sometimes to the company accounts for Alliance, and sometimes to Dalisay Sulit. Based on her participation in the plan, as of December 31, 2008, Dalisay Sulit’s individual account balance was approximately $269,300.11. From May 30, 2012 to February 27, 2014, she received approximately $754,699.90 in excess of her December 2008 account balance.

Filed in the U.S. District Court for the Northern District of Illinois, the suit seeks restoration of all related plan losses, including lost opportunity costs, and a court order requiring the defendants to account for and restore losses to plan participants.

The department is also seeking to permanently enjoin the defendants from serving as fiduciaries or service providers to any plan covered by ERISA. The suit requests the appointment of an independent fiduciary, who would be compensated at the company’s expense, to distribute the plan’s assets to participants and beneficiaries, and to terminate the plan.

“Plan funds must be invested in the interest of workers and retirees, not used to prop up a struggling firm,” said Jeffrey Monhart, regional director of the department’s Employee Benefits Security Administration (EBSA) in Chicago. “Too often, we see employee benefit plan funds used illegally by company owners and management, jeopardizing the financial security of workers and retirees.”

The DOL case document can be viewed here. 

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