Compliance August 8, 2018

All 403(b) Plan Sponsors Should Focus on Document Remedial Amendment Period

403(b) plan sponsors have until March 31, 2020, to adopt a pre-approved plan document and to make sure their plan has been operating in accordance with the plan terms.
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The last day of the 403(b) plan remedial amendment period may seem far off, but it’s not, and both Employee Retirement Income Security Act (ERISA)-governed and non-ERISA 403(b) plan sponsors need to start working on any plan restatements now.

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Grant Halvorsen, VP Retirement Plan Consulting at MRP, formerly Moreton Retirement Partners, in Salt Lake City, Utah, explains that when the final regulations were put into place in 2007, they stated that all 403(b) plan sponsors (other than certain church plan sponsors) had to adopt a written plan document no later than December 31, 2009—a new requirement for non-ERISA plans. However, he says, the Internal Revenue Service (IRS) did no offer a lot more guidance about what the document needed to say or include. “Plan sponsors made a good faith effort, with the comment of really being not sure if their documents comply with what the IRS wants,” Halvorsen says.

In fact, the IRS indicated that the plan document requirement can be satisfied with a collection of documents, sometimes referred to as the “paper-clip” approach, with one centralized document and additional provisions found in a variety of documents, including underlying investment product contracts, administrative and service agreements, procedures, and if applicable, state statutes and regulations.

In April 2013, the agency issued Revenue Procedure 2013-22 establishing a pre-approved plan program for 403(b)s and offered a remedial amendment period for 403(b) plan documents. The last day of the remedial amendment period for 403(b) plans is March 31, 2020.

What the remedial amendment period offers

Halvorsen explains that the remedial amendment period allows 403(b) plan sponsors to restate their plans to adopt one of the prototype or volume submitter plan documents pre-approved by the IRS, retroactively effective January 1, 2010. Plan sponsors may adopt these plans as restatements to correct any form defects in their written plans from January 1, 2010, to the end of the remedial amendment period.

In other words, says Deborah Grace, attorney at Dickinson Wright PLLC in Troy, Michigan, the remedial amendment cycle is a period of time in which the plan sponsor can go back and fix its plan document so it reflects how the plan has been operating.

Halvorsen notes that adopting a pre-approved document assures plan sponsors that their documents are correct in form. However, if they find they have operational errors—where the plan has not been administered according to terms of the document—those have to be corrected through the IRS’ Voluntary Correction Program (VCP) program, and plan sponsors still have to pay filing fees.

There are exceptions. Grace points out that the IRS is allowing for effective date addendums to 403(b) plan documents to allow plan sponsors to note any changes to plan administration that were made after the adoption of a written plan document. For example, Grace says, if a nonprofit adopted a 403(b) document effective January 1, 2009, and the document said the plan only accepts employee deferral contributions, but around 2015 the plan sponsor decided it would match employee deferrals and never amended its plan to reflect that, the IRS says if the plan sponsor had a good document in place at the end of 2009 and adopts a prototype as of March 31, 2020, it can add an amendment reflecting the effective date of the match with no penalty for not operating in accordance with the plan.

“That’s a key piece plan sponsors need to know—what they did with the plan between 2010 and the end of the remedial amendment period, and when any changes were effective,” she says.

To adopt or not to adopt

Neither Grace nor Halvorsen have come across a plan sponsor client that was previously using a paper-clip approach for their plan document and is having trouble fitting into a new IRS pre-approved plan document. However, Halvorsen suggests if that is the case, plan sponsors should amend their plan to fit into either a prototype or volume submitter pre-approved plan document. “A volume submitter plan document would be more flexible for paper-clipped plan documents and probably the best fit,” he says. “According to the IRS, as long as the document is ‘substantially similar’ to the volume submitter document, plan sponsors will have reliance that it complies in form to IRS regulations.”

From a practical standpoint, Grace says, plan sponsors rely on recordkeepers to partner with them to make sure the plan is operating correctly and assets are recordkept correctly, and recordkeepers prefer a pre-approved plan document—they’ve designed their systems to work with a pre-approved document. “If a plan sponsor has an individually designed plan document, it may be limited on which vendors it can use,” she says, “There’s no good reason not to adopt a pre-approved plan document.”

Grace adds that this plan restatement and remedial amendment period may provide a good incentive for non-ERISA plan sponsors, such as K-12 public schools, to consolidate vendors.

Both Grace and Halvorsen agree that if a 403(b) plan sponsor decides not to adopt a pre-approved plan document, it should turn to an attorney well-versed in the IRS regulations to review the plan document and provide a letter stating it complies. “Some may not be willing to do so, but it’s a good starting point,” Halvorsen says.
Compliance August 6, 2018

Pace of EBSA Settlements and Plan Corrections Is Strong

“On the retirement side, again, there is a strong focus on missing participants, and EBSA is diving incredibly deep," says David Levine, principal with Groom Law Group.
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On its website, the Department of Labor (DOL) reports its enforcement of the Employee Retirement Income Security Act (ERISA), via the Employee Benefits Security Administration (EBSA), now extends to over nearly 681,000 retirement plans.

The EBSA’s mission to ensure the integrity of the private employee benefit plan system in the United States also applies to approximately 2.3 million health plans, and a similar number of other welfare benefit plans, such as those providing life or disability insurance. These plans cover about 143 million workers and their dependents and include assets of more than $8.7 trillion as of the end of 2015, EBSA reports. In 2017, EBSA recovered $1.1 billion in direct payment to plans, participants and beneficiaries.

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According to the most recently published EBSA enforcement data, in 2017, the regulator closed 1,707 civil investigations, with 1,114 of those cases (65.3%) resulting in monetary compensation for plans or other corrective action. EBSA says this “exhibits its ability to effectively target ERISA violators in the employee benefit plan universe.”

Of the $682.3 million recovered in its investigations, EBSA helped terminated, vested participants in defined benefit plans collect benefits of $326.7 million due to them. In the enforcement data, EBSA notes that it “often pursues voluntary compliance as a means to correct violations and restore losses to employee benefit plans. However, in cases where voluntary compliance efforts have failed, or that involve issues for which voluntary compliance is not appropriate, EBSA forwards a recommendation to the Solicitor of Labor to initiate litigation.”

Notably, the data shows in 2017, 134 cases were referred for litigation, but the DOL only filed suit in 50 civil cases. This is because EBSA works with the Solicitor of Labor “to determine which cases are appropriate for litigation, considering the ability to obtain meaningful relief through litigation, cost of litigation, viability of other enforcement options, and agency enforcement priorities.” Of course, EBSA civil cases referred to the Solicitor’s office for litigation are often resolved with monetary payments, short of litigation.

Demonstrating EBSA’s broad authority, the data shows EBSA closed 307 criminal investigations last year, leading to the indictment of 113 persons for misdemeanor or felony crimes related to employee benefit plans. EBSA has responsibility to investigate potential violations of the criminal provisions of ERISA and those provisions of Title 18 of the United States Code that relate to employee benefit plans.

EBSA’s Voluntary Fiduciary Correction Program (VFCP) and Delinquent Filer Voluntary Compliance Program (DFVCP) encourage the correction of violations of ERISA by providing significant incentives for fiduciaries and others to self-correct. In 2017, EBSA received 1,303 applications for the VFCP. The DFVCP encourages plan administrators to bring their plans into compliance with ERISA’s filing requirements. In 2017, some 22,139 annual reports (and $14.4 million) were received through this program.

Lessons from the data

These settlement numbers may seem quite large on first glance, but given the fact that there are more than 650,000 retirements plans alone under its jurisdiction, it is clear that EBSA faces an incredible regulatory task—one made all the more difficult by the complicated nature of even relatively straightforward benefit plans. Thus the regulator has to focus its investigative and enforcement resources in strategic and targeted way, explains David Levine, principal with Groom Law Group, in Washington, D.C.

As an example, he suggests one major regulatory priority in 2018 is “cracking down on the missing participants.” And it makes sense why EBSA would focus on this issue, given that it is more or less a universal issue across all types of plans, industries, regions, etc. Interestingly, this focus has been building for some time and continues under President Donald Trump, because while the top-level political leadership of DOL has changed, the rank and file remains, along with many of their ongoing projects.

“This is the center of the DOL world right now, as it relates to retirement plan sponsors, in my opinion,” Levine says. “Sure, there are other things going on, but enforcement is part of life and it does not change very much if it is a Democratic or Republican administration. You have got regional offices spread across the country, and they take guidance from the national office in Washington, but in reality they are relatively autonomous and move at their own pace.”

This is a big reason why, despite the Trump administration’s anti-regulatory agenda in so many other areas, when it comes to policing of retirement plans by the EBSA, the pace of settlements and corrections remains strong.

“I can tell you that the regional offices have been doing a lot of investigations, both on the retirement side and on the health care side as well,” Levine adds. “On the retirement side, again, there is a strong focus on missing participants, and EBSA is diving incredibly deep. They are auditing both defined contribution and defined benefit plans on this issue.”

Levine warned that many plan sponsors, when asked by the EBSA about their policies and procedures in this area, are taken aback, and they try to explain that they rely on the recordkeeper to search for missing participants.

“But as the EBSA will tell you, the responsibility ultimately sits with you as the plan fiduciary to find these people and implement your stated policies effectively,” Levine says. “There is Field Assistance Bulletin 2014-01 from the DOL that says, ‘Take these steps and you will be OK.’ But in the investigations they are going much further. I’ve had an EBSA regional office director recently tell us that a plan sponsor should have cold called a person that may have worked with a missing participant more than 20 years ago. Because these investigations get very timely and costly, I highly recommend going back and rechecking your fiduciary insurance. Make sure the policies are good and cover the costs of dealing with these investigations. You can end up spending a lot on lawyers.”

According to Jodi Epstein, a partner with Ivins, Phillips and Barker, other agencies and regulators with a strong degree of autonomy are also continuing enforcement pushes in a variety of areas under President Trump. She points to missing participant audit activity by the Internal Revenue Service (IRS) and the Pension Benefit Guaranty Corporation (PBGC) as two leading examples.

“Yes it’s the DOL leading enforcement of retirement plans, but all the agencies are in on this,” she explains. “They are all thinking about missing participants and many other issues. They’re all putting out guidance that says one simple search for missing participants is not enough.”

Another important ongoing enforcement factor Epstein points out is that, for the first time in some time, DOL and IRS are hiring more enforcement and guidance development personnel.

“This is something new and interesting that has really just picked up in the last few months,” she explains. “I think it is something to watch and actually potentially a good thing for plan sponsors, because we could see some of the guidance projects actually pick up speed. Perhaps we will see more helpful guidance in areas that are pressing for plan sponsors right now, on retirement income safe harbors, for example.”

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