In 2013, the DOL collected $1.69 billion in fines, voluntary fiduciary corrections and informal complaint resolutions, a 33% increase over 2012’s $1.27 billion tab. Increased enforcement efforts have found a number of violations common to plans (see “10 Lessons Learned from Others’ Mistakes”).
Brett Goldstein, director of Retirement Planning at American Investment Planners LLC in Jericho, New York, tells PLANADVISER the most common DOL violation he sees among his clients is the failure of the trustee to timely remit employee contributions and loan repayments to the plan. The most common IRS violation is the failure to have the proper plan documents. “The shocking part is that most employers don’t care and only correct the problems when they get caught,” he says, offering a couple of anonymous examples of clients who ignored his warnings about violations for their plans.
For one thing, according to Goldstein, if a plan sponsor uses a prototype plan document, it has to have every one going back to 1986. But, he finds most have just five or six years of past plan documents. And companies do not amend the documents as they should.
In addition, since the Form 5500 is an informational return, not like a personal 1040 where if you don’t send money you’ll get into trouble, Goldstein finds some clients are lax in filing it.
“It’s worse to get caught, [than to fix errors on their own],” he says. “Every plan enjoys tax-qualified status, but once you stop following the rules, they lose tax-qualified status—the money in the plan becomes taxable and money sponsors put in they will not get a deduction for.”
Goldstein contends that plan sponsors take for granted that the money is tax-deferred, but they need to remember that is only so if they follow the rules.
Goldstein points out that both the DOL and IRS have correction programs with language providing that plan sponsors can fix some things themselves. “Fixing mistakes yourself is better because you only pay someone to make calculations for the correction, but if you get caught, there’s a fee or fine to get into a correction program, then you have to hire someone to make calculations, and you may also pay penalties,” he explains.
Plan sponsors have to start caring whether their plan is in compliance; they have to start devoting time to this, Goldstein insists. He concedes that many employers, especially in the small business market, are so busy just trying to run their business, they don’t have the time to commit to their plans. This is where the help of an adviser can come into play.
“Don’t take for granted your plan’s compliance, start checking your plan to make sure you are ok, and you need to get a second opinion,” Goldstein suggests.