As I mentioned then, this is a compilation based on my experience, the experiences of a group of experts who conducted a panel by the same title at the PLANSPONSORNational Conference in June, and a list of “Common Plan Mistakes” from none other than the Internal Revenue Service itself.
Here’s the rest of the list:
6. Not providing required notices to participants (e.g., safe harbor notices or QDIA notices).
The law provides plan fiduciaries with certain protections conditioned on the timely provision of notices deemed sufficient to alert participants to their rights and the obligations of the plan fiduciaries. This holds true with so-called “safe harbor” plan designs as well as the selection of qualified default investment alternatives (QDIAs), or the implementation of automatic enrollment, where the participant could opt out of deferrals, select a different deferral amount, or select another investment option.
While the implications of failing to provide a timely notice vary depending on the purpose of the notice, generally speaking, a failure to provide the notice invalidates the protections afforded the fiduciary.
7. Failing to obtain spousal consent.
The IRS notes that a common plan mistake submitted for correction under the Voluntary Correction Program (VCP) is the distribution to a participant of a benefit in a form other than the required QJSA (e.g., a single lump sum) without securing proper consent from the spouse. This often happens when the sponsor’s human resources accounting system incorrectly classifies a participant as not married (or when the participant was not married at one point and subsequently got married—or remarried). The failure to provide proper spousal consent is an operational qualification mistake that would cause the plan to lose its tax-qualified status.
8. Paying expenses from the plan that are not eligible to be paid from plan assets.
Plan sponsors are frequently interested in what expenses can be paid from plan assets. The first step in that determination involves making sure that the plan document allows the payment of any expenses from plan assets.
Assuming that the plan allows it, the Department of Labor has divided plan expenses into two types: so-called “settlor expenses,” which must be borne by the employer; and administrative expenses, which—if they are reasonable—may be paid from plan assets. In general, settlor expenses include the cost of any services provided to establish, terminate, or design the plan. These are the types of services that generally are seen as benefiting the employer, rather than the plan beneficiaries.
Administrative expenses include fees and costs associated with things like amending the plan to keep it in compliance with tax laws, conducting nondiscrimination testing, performing participant recordkeeping services, or providing plan information to participants.
9. Not knowing (or making an effort to ascertain) if your plan fees are reasonable.
As a plan fiduciary, you have several key responsibilities, one of which is to make sure that the fees paid by, and the services rendered to, the plan be reasonable. Fulfilling that responsibility would seem to require that you know the services that are being rendered, and that you know the fees paid for those services.
Determining that the combination is reasonable may seem as much art as science, but if you do not have the answers to those two key variables, IMHO it is hard to imagine how you can satisfy your obligation as a fiduciary.
10. Not seeking the help of experts when you lack the expertise to make fiduciary decisions impacting the plan.
ERISA imposes a duty of prudence on plan fiduciaries that is often referred to as one of the highest duties known to law—and for good reason. Those fiduciaries must act “with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” The “familiar with such matters” is the sticking point for those who might otherwise be inclined to simply adopt a “do unto others as you would have others do unto you” approach. Similarly, those who might be naturally predisposed toward a kind of Hippocratic “first, do no harm” stance are afforded no such discretion under ERISA’s strictures.
Simply stated, if you lack the, skill, prudence, and diligence of an expert in such matters—you are expected to get help.
Last year’s list of “10 Things You’re (Probably) Doing Wrong” is at http://www.plansponsor.com/MagazineArticle.aspx?id=4294990078&magazine=4294970159
The list of Common Plan Mistakes from the IRS is available at http://www.irs.gov/retirement/sponsor/article/0,,id=137958,00.html
As for correcting those mistakes, see the IRS’ 401(k) Fix-It Guide at http://www.irs.gov/pub/irs-tege/401k_mistakes.pdf#page=2
You can find more information on fulfilling your fiduciary responsibilities at the Employee Benefits Security Administration’s (EBSA) Web site at http://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html