Compliance May 16, 2019

IRS Indicates 403(b) Initiatives Coming This Summer

However, 403(b) plans are in a remedial amendment period, and the IRS has offered much help for them to be in compliance with regulations.

Reported by

According to a blog post by Paul M. Hamburger with Proskauer Rose LLP, IRS officials have recently indicated that the agency expects to launch audit initiatives this summer targeting 403(b) plan compliance.

403(b) plans are currently in a remedial amendment period during which the IRS is giving plan sponsors 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. 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.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

During this time, if 403(b) plan sponsors find they have operational errors—where the plan has not been administered according to terms of the document—they can use the IRS’ Employee Plans Compliance Resolution System (EPCRS) to fix those errors. A recent IRS Revenue Procedure expanded self-correction methods for certain retirement plan document and retirement plan loan failures and provides a new method of correction by plan amendment. In addition, 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.

The IRS has provided other help for 403(b) plan sponsors. In a page on its website, the agency lists common 403(b) plan mistakes, IRS services, products and assistance to help 403(b) plan sponsors stay in compliance. It also hosted a webinar answering questions about universal availability rules.

More recently, the agency issued Notice 2018-95, which provides transition relief from the “once-in-always-in” (OIAI) condition for excluding part-time employees from 403(b) plan eligibility under Section 1.403(b)-5(b)(4)(iii)(B) of the Treasury Regulations. Industry comment letters had argued that many 403(b) plan sponsors were unaware of the rule that once a part-time employee is eligible to make elective deferrals, he cannot be excluded from the plan in subsequent years.
Compliance May 16, 2019

Excessive Fee Suit Filed Against Greystar Management

The lawsuit accuses the sponsor of a small 401(k) plan with failing to monitor and correct excessive fees.

Reported by

A participant in the Greystar 401(k) Plan has filed a proposed class action lawsuit against the property management firm alleging it breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by allowing excessive administrative and investment fees to be charged.

According to the complaint, for every year between 2013 and 2017, the administrative fees charged to plan participants were greater than 90% of peer plan fees when fees are calculated as cost per participant. And for every year between 2013 and 2017 but one, the administrative fees charged to plan participants is greater than 90% of peer plan fees when fees are calculated as a percent of total assets. The lawsuit says financial information for 2018 is not yet available.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

The lawsuit also alleges that as of December 31, 2017, the fees for the investment options then in the plan were up to three-times more expensive than available alternatives in the same investment style. The mutual fund options that were in the plan in previous years but removed before December 31, 2017, also had excessive fees relative to comparable investments.

It notes that in 2017, the Greystar plan submitted financial information and other forms to the federal government under plans with assets between $100 million to $250 million. In 2017, a lawsuit against another small plan sponsor alleging excessive investment fees was filed. It was ultimately settled, though the allegation about failing to remove its poorly performing money market fund when a better-performing stable value fund was available was allowed to be refiled.

In the Greystar lawsuit, the plaintiff alleges that Greystar’s process of decision-making, monitoring and soliciting bids from investment funds was deficient in that it resulted in almost no passively managed fund options for plan participants, resulting in inappropriately high administrative plan fees.

In addition, according to the complaint, Greystar failed to employ a prudent and loyal process by failing to critically or objectively evaluate the cost and performance of the plan’s investments and fees in comparison to other investment options. “Greystar selected and retained for years as plan investment options mutual funds with high expenses relative to other investment options that were readily available to the plan at all relevant times,” it says.

Greystar is accused of breaching its ERISA duty of loyalty by failing to make plan investment decisions based solely on the merits of each investment and in the best interest of plan participants and failing to ensure the plan was invested in the lowest-cost investment vehicles. It is also accused of breaching its ERISA duty of prudence.

The lawsuit asks Greystar to make good to the plan the losses resulting from the breaches, to restore to the plan any profits Greystar made through the use of plan assets, and to restore to the plan any profits resulting from the breaches of fiduciary duties alleged. It also asks for other equitable relief as provided for in ERISA.

Greystar told PLANADVISER that as a policy, it does not comment on pending litigation.

«