Compliance February 10, 2007

Segal Issues Reminder about PPA Changes to Participant Benefit Statements

Segal has issued a reminder that the Department of Labor’s (DoL) new requirements for individual benefit statements require changes to participant plan statements.
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The Pension Protection Act (PPA) requires that individual benefit statements are provided automatically to participants and beneficiaries on a quarterly basis for DC plans that allow participant-directed investments; annually for DC plans that don’t allow participant-directed investments, and every three years for DB plans to active or vested participants.

In addition to changing the frequency at which statements should be issued to participants and beneficiaries, the law also added to the information that should be included on the statements:

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  • DC plan statements must include the value of each investment in an individual’s account as of the most recent valuation date;
  • DC plans that allow for participant-directed investments must describe the importance of investment diversification.

According to Segal, the key provisions in the DoL guidance are as follows:

  • Defined benefit plans are not required to provide statements until at least the 2009 plan year;
  • Statements must be provided within 45 days after the end of a period;
  • Benefit statements may be delivered in written, electronic or other reasonably accessible form;
  • DC plans that allow participant-directed investments must include language on the importance of long-term retirement security and of a well-balanced and diversified investment portfolio, including a statement that holding more than 20% of a portfolio in one entity may not be adequately diversified.
  • For DC plans that allow all participants to direct investments, the statements must describe any plan limitations on those rights.

The rules are effective for plan years starting after December 31, 2006; however participants covered by collective bargaining agreements get an extension.

For participants covered by collective bargaining agreements in plans maintained under such agreements, the rules are effective for plan years beginning after the earlier of (1) the later of December 31, 2007 or the date on which the last collective bargaining agreement terminates (without extensions), or (2) December 31, 2008.

Multiemployer plan trustees and sponsors of other plans covering a mix of bargained and non-bargained people will have to decide whether to comply in stages, based on the literal effective dates, or to treat all participants the same and comply earlier than might be required for many of the participants, Segal said.

Compliance February 9, 2007

Fiduciary Breach Costs CPA $5,000

A California CPA firm will have to pay $5,000 in restitution to an employee stock ownership plan (ESOP), to resolve a lawsuit alleging that the CPA firm knowingly participated in fiduciary breaches under the Employee Retirement Income Security Act (ERISA).
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In addition to a restitution payment, the CPA firm must pay a $1,000 civil monetary penalty to the Department of Labor (DoL), and must establish a program that ensures that personnel must have completed a minimum of eight hours of professional education related to employee benefit plan audits within three years prior to signing a plan audit opinion or managing a plan audit engagement.

Ahlstrom & Baker CPAs in Los Alamos, California was alleged to have knowingly participated in breaches by the committee members for the ESOP of Rehab Consultants of Florida Inc. (RCI) and others when the firm failed to disclose in its audit report that the plan was not receiving employer contributions needed to make loan payments on RCI stock purchased by the plan, according to a press release from the DoL.

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“The law requires audit of employee benefit plans with 100 or more participants,” said Howard Marsh, director of the Atlanta regional office of the Labor Department’s Employee Benefits Security Administration (EBSA), in the press release. “These audits provide important information for plan fiduciaries and the government about the financial soundness of a plan.”

In February 2006, the DoL sued three plan committee members for allowing the plan to engage in a prohibited transaction that included $170, 000 in loan payments from the plan to RCI, which was later dissolved and the plan committee members resigned without providing for continued management of the plan. The value of the stock purchased by the ESOP, which the Labor Department alleges the defendants abandoned, declined from $19.74 per share in 1996 to $.79 per share in 1998 and is currently worthless, according to a DoL press release.

The suit was Chao v. Gentzel, Civil Action No. 06-CV-0448.

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