Plan Corrections Necessary? DOL Corrections Program

Posted on June 25 2014 by admin

If your company offers an employee benefit plan that is subject to the Employee Retirement Income Security Act (“ERISA”), for example a 401(k) plan, it is important to remember that your Company is responsible for ensuring that the Plan and any plan transactions comply with the fiduciary standards ERISA has created. Even though a Plan can implement thorough internal controls and oversight into the plan operations, inadvertent mistakes and errors still happen. These mistakes and errors can cause a Plan significant taxes and liabilities if uncorrected. Below is a summary of the Department of Labor’s (“DOL”) correction programs:

  • Delinquent Filer Voluntary Compliance Program (“DFVCP”) – This program allows for Plans to file delinquent IRS Form 5500s with reduced penalties. This program cannot be used if the Plan and/or Plan Sponsor have been notified by the DOL of non-filings. The program includes two-steps. The first step is to file the delinquent Form 5500, ensuring to select filing under the DFVC program on the first page of the Form 5500. The second step is to pay the penalty and fees for filing under the DFVCP.
  • Voluntary Fiduciary Correction Program (VFCP) – This program allows for Plans to correct certain violations before the DOL investigates or notifies the plan, and if no criminal violations are present. If approved by the DOL, the Plan will receive a “No-Action” letter that provides relief from the excise tax. Some transactions that are eligible for correction are delinquent participant contributions and loan repayments, loan amounts or duration in excess of Plan limits, and excessive or unnecessary compensation paid by the Plan.

If you have come across a plan error that needs to be corrected, reach out to your Plan auditor, third-party administrator or ERISA attorney for further guidance on which of the above correction programs is necessary for your Plan.

By Kevin C. Bach, CPA, CVA

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Have Lost Participants in Your 401(k) Plan?

Posted on June 17 2014 by admin

Lost participants are those participants who have balances in the plan (unclaimed benefits) or have been distributed an amount from the plan (uncashed benefit checks) and cannot be located. The participant either doesn’t know or forgot they have a balance since their employment was terminated or have relocated with no forwarding address. The participant’s account could also have been distributed without the participant’s knowledge (an automatic distribution).

In the past, this issue has not been addressed by plan sponsors or independent auditors because the issue was not prevalent, and if it was, it was not “material”. In recent times, there have been trends leading to an increased risk in this area. These trends include the following

  1. Automatic enrollment into 401(k) plans
  2. Employees holding multiple jobs during their careers
  3. Employees leaving their accounts with previous employers
  4. Employers’ automatic distributions of accounts less than $1,000

As these trends continue to grow, the balances in the plans will become larger and need to be addressed. The Department of Labor (“DOL”) has yet to issue guidance on the plan sponsor’s fiduciary responsibility related to this; therefore, the plan sponsor, as a best practice, should have controls in place to address the unclaimed benefits and uncashed benefit checks. Some examples of best practices would include (but are not limited to) the following:

  1. Monitor and track uncashed checks with the assistance of either the custodian or the third party administrator (“TPA”).
  2. Monitor and track unclaimed benefits remaining in the plan, utilizing the DOL’s safe harbor plan of rolling over accounts less than $5,000 to an IRA.
  3. Use the various methods available to locate lost participants (i.e. commercial locator services, credit reporting agencies, internet search tools).

By Leslie Lee, CPA

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Journal Entries for Benefit Plan Accounting

Posted on June 10 2014 by admin

Most plan administrators understand that there is accounting involved to track their benefit plan’s financial performance including but not limited to contributions to the plan, distributions out of the plan, and interest and appreciation/depreciation of investments held by the plan. However, most plan administrators do not become overly concerned with the accounting entries that are made, adjusted and grouped to create the benefit plan accounting records because these accounting tasks are generally prepared by the third party administrator. This lack of concern could create unnecessary financial statement risk for the benefit plan, as unauthorized or incorrect journal entries could potentially misstate the financial results of the benefit plan. Accordingly, the review and approval of journal entries, especially manual journal entries, is imperative to ensure proper financial reporting results are maintained and reported for your benefit plan.

Here are some general steps (although not all inclusive) that a plan administrator can perform in order to obtain comfort over the manual journal entries posted to the benefit plan accounting records:

  • Understand which third party administrator is preparing your plan’s financial records. If there is more than one party, understand the difference in financial reporting results (if any).
  • You should understand how each transaction is recorded. For example, every contribution and distribution may be an entry that is systematically transacted/journalized when the transaction is entered, and this entry is typically known as a systematic/standard journal entry. A manual journal entry occurs when an individual manually selects the specific financial statement accounts to journalize a specific transaction to.
  • Inquire with your third party administrator that prepares your financial records, and obtain an understanding of how they track systematic/standard versus manual journal entries. Obtain a listing of manual journal entries (if any) and review for propriety.
  • Review your third party administrator’s SOC-1 Report (if applicable) and determine how manual journal entries and financial statements are prepared. Ensure consistency to the reports and actual procedures you identify for your plan.
  • Obtain a listing of transaction data by type (i.e. contributions, loan issuances, loan repayments, distributions), and reconcile the totals to the financial statement totals.
  • Obtain a listing of transaction data by type (i.e. contributions, loan issuances, loan repayments, distributions), and reconcile to plan administration records (if maintained).
  • Ensure that the third party administrator will only accept financial statement transaction requests from members of plan administration that are properly authorized with the third party administrator.
  • Review your plan’s financial statements for any line items that are labeled as manual adjustment, or adjustments, or that appear to be indicative of a non-standard journal entry.

These are just several examples of understanding and identifying manual journal entries made to your benefit plan’s financial records. If you have any questions, or would like to learn more about why this review procedure is important, please feel free to contact us.

By Victor Fuentes

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Tips to Prepare for a Retirement Plan Audit

Posted on June 3 2014 by admin

If you are about to undergo a 401K audit, there are many things that can be done to ensure that the audit goes smoothly. This means getting audit packages ready early on, being in contact with the individuals that are involved and following up on open items. When these simple steps are followed there will be greater efficiencies on your audit and each year they will get better and less burdensome.

Get in touch with your Auditors early on

It’s a good idea to contact your auditor 3 or 4 months prior to when you would normally have your audit scheduled. This way you can discuss fees, timing, and even go over things that went good or bad in the prior year, so if necessary the auditor can plan to revise the approach. Once you have contacted them and gone over these details you can schedule out the timing for the audit and this gives them time to get out any selections or requested items well before the audit. This way you can pull these items in advance and it doesn’t pile up in the last few days before the audit.

Contact your Custodian

Once you know the timing of your audit it is a good rule of thumb to reach out to your TPA 2 months prior to the audit. This way you can get access for the auditor and it helps the custodian plan for getting your audit package ready. Once you have given the auditor access and the audit package, the auditor can begin to make selections.

Get documents pulled prior to the arrival of Auditors

Once the auditor has given you their requests as well as the sample selections, start getting these items completed and pulled. It is in our nature to procrastinate and wait until we have to do something; however, this can really slow down the audit. The more items you can get completed prior to the auditor’s field work the better. There are many items that the auditor can begin to do from the office. This assists the auditor to properly prepare for the audit as well as to know what questions they may have for you while they are out conducting the audit.

Follow-up after the audit is complete

Finally, once fieldwork is complete follow-up to ensure that any remaining open items are complete. This will assist with getting the audit finalized and ready for issuance. If these items don’t get wrapped up quickly after the audit, it becomes difficult both for the client as well as for the auditor and custodian to be able to find the additional time to dedicate to the audit and can lead to inefficiencies and a dragged out audit.

Following these simple steps will create ease in your audit and you will notice that each year that these steps are followed the audit will become much easier!

By Brie Keckler

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10 Steps to Put on Your Retirement Planning Checklist

Posted on May 13 2014 by admin

The average American doesn’t give proper attention and consideration to retirement financial planning for a variety of reasons (excuses). Perhaps you don’t have time in your day-to-day life to squeeze in financial planning because it seems complicated and time consuming. Maybe you think it can be done next year; what’s the rush to do it this year? These attitudes, along with a lack of financial planning education, are part of the reason so many Americans are in a bad retirement situation. However, you don’t have to be one of those individuals. Summarized below are 10 of the most important steps you should be doing right now if you plan to retire within the next 10 years, according to Scott Spann, CFP (a.k.a The Money Doc).

  1. Write down your life goals, not just your retirement goals. Think about all areas of your life: family, career, social, health, personal, retirement. Set S.M.A.R.T goals – Specific, Measureable, Attainable, Realistic, Timely.
  2. Analyze your personal spending plan. There are many online budgeting tools available to analyze your spending such as Mint or Personal Capital. Take advantage of one if you have trouble managing your spending. Identify where your money is going and start to create a budget plan for retirement.
  3. Maximize your usage of tax advantaged accounts to maximize the value of retirement funds. Know the IRS contribution limits – $17,500 for 2014 ($23,000 for ages 50 and older). Consider investment alternatives: taxable brokerage accounts, buying property, etc.
  4. Run multiple retirement calculations. You will be surprised at how many free services there are, such as Google retirement calculations, to provide you with a ball park estimate on what your financial future will look like after you’re no longer working. Review your own calculations and retirement goals with a Certified Financial Planner.
  5. Review your health insurance coverage options. This is the number one concern for soon-to-be retirees. Health costs can make up a significant portion of the retirement budget.
  6. Consider obtaining long term care insurance. Main options: self-insure by padding your retirement budget, spend down assets to qualify for Medicaid, or purchase long-term care insurance.
  7. Have a plan to eliminate your remaining debt. Debt free is the best way to live in retirement.
  8. Re-Assess your tolerance for risk. As you age, your appetite for risk is bound to change. Think realistically about what you’re willing to do.
  9. Update your estate planning documents. Wills, durable power of attorney, health care power of attorney, and advanced health care directives are all things you should take time to put in place.
  10. Estimate your pension (if you have one) and Social Security income. Knowing your future streams of income will help you budget.

By Josh Mitchell

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How is Compensation Defined?

Posted on May 6 2014 by admin

Compensation in its simplest form is pay in exchange for services rendered, although gross pay includes additional forms of compensation aside from the hourly rate paid to employees. In reference to 401(k) plans, the term “pay” becomes more complex. Under the statutory safe harbor regulations an employer is required to include additional forms of compensation such as bonuses, overtime, commissions, tips, fringe benefits, etc. The purpose of which is to ensure that there are no discriminatory practices regarding 401k’s that benefit highly compensated employees.

Excluding the aforementioned forms of compensation does not meet the safe harbor regulations and may result in an employer(s) facing non-discrimination testing with the IRS. For example, if ABC Company allows a 10% contribution for all four employees but does not include overtime in that compensation for the non-highly compensated employees, ABC may have to undergo testing with the IRS. In another example, if all four employees were able to contribute the same percentage of income with all forms of compensation included, no testing will be required.

Common issues that employers have with safe harbor include the following: certain bonuses are excluded from contributions, the correct matching amount is not maintained for commissioned employees, deferrals aren’t consistent, and stock options aren’t calculated appropriately. If in fact an employer faces testing and fails, the contribution errors must be fixed through corrective distributions. Correction of such errors can be extremely costly depending on the gravity of the errors. Safe harbor plans can be extremely beneficial to employers, helping to avoid the IRS testing process and costly errors.

By Sarah McFarland

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Pre-Tax v. Roth 401(k): Which is Better for Your Financial Portfolio?

Posted on April 22 2014 by admin

Some plans allow participants to make Traditional (pre-tax) contributions and also Roth (after-tax) contributions. Making a decision on which contributions are right for you can be a difficult choice, as there are current and future tax consequences that you should consider.

With a Roth 401(k), you can eliminate concerns about your retirement tax rates, but for some people, traditional 401(k)’s are still the way to go. For example, contributions deferred into a traditional 401(k) plan don’t count as income in the year of the contribution, which makes it a great choice if your gross income is more than you expect it to be in the future. However, if you’re just getting started, or expect a higher tax rate in your retirement years, a Roth 401(k) plan allows you to make after-tax contributions, meaning the contributions do not reduce your taxable income for the year.

Ultimately, a good approach in making your decision is to compare your current tax bracket with which bracket you think you will be in when you retire. If you expect your future tax rate to be lower, then it might be a good idea to go with pre-tax contributions. If you expect your future tax rate to be higher, then Roth might be your best bet. If you are unsure, but the plan allows you to do both, then that would be an option as well.

Looking at your current and future tax rates isn’t the only factor that you should be considering in making your decision; however, it is a good place to start.

By Ryan Wojdacz

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Hardship Distribution Documentation

Posted on March 18 2014 by admin

IRS requirements are surprisingly vague regarding hardship distributions. In the absence of clear-cut rules, we sometimes see hardship distributions with very little or no supporting documentation. As a plan administrator you should not only comply with the IRS requirements, but also document your compliance with these requirements. Let’s look at a few of the requirements and discuss some common sense ideas for documentation.

Requirement – The participant must demonstrate an “immediate and heavy financial need.”

Some plans require the participant to provide documentation supporting their financial need (i.e. medical bills, past due mortgage notices). Other plans may only require a signed affidavit. At the very least, we would recommend having documentation showing the steps that were taken to determine that a financial need existed. This could be as simple as a checklist that is followed for all hardship distributions. The most important consideration is that your process determining that a financial need exists must be applied the same way for all participants. If one participant is required to provide documentation and another only has to sign an affidavit, it could be considered discriminatory.

Requirement – The participant must have exhausted any other liquid sources of income.

It is not typical for plan administrators to request documentation regarding other liquid sources of income available (i.e. bank statements). Typically the plan administrator will just rely on an affidavit signed by the participant. However, as the plan administrator, you do have information regarding the participant’s eligibility for a 401(k) loan. Consider whether a participant that is still eligible for a 401(k) loan has “exhausted other liquid sources of income.” You might, at least, add to your checklist to inquire whether the participant has considered a 401(k) loan as an alternative to a hardship distribution.

Requirement – The hardship distribution cannot be approved for more than the qualified financial need.

The distribution can be grossed up for tax withholdings, but any additional distribution would not be allowed by the IRS requirements. In order to demonstrate that you took this requirement into consideration, you should at least include in your documentation the amount of the financial need that the participant has demonstrated.

Hopefully this article has given you some ideas on forming documentation policies for hardship distributions. Be sure to seek advice from your CPA and attorney if you have any questions specific to your plan.

For more information on IRS regulations regarding hardship distributions, visit

By Rex Platt, CPA

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ERISA Accounts – Plan Assets?

Posted on March 4 2014 by admin

Employee benefit plans are seeing increased regulation and disclosure of plan fees including new disclosures of compensation paid to covered service providers in July 2012 ( The result of the new fee disclosures and oversight by plan fiduciaries is that record-keepers are expanding their offering of expense accounts, typically known as an ERISA Account, to plan sponsors. 

The funds in these accounts are generated when the record-keeper provides a variety of investment options to plan participants, and the record-keeper receives payments from these investments, typically in the form of SEC 12b-1 fees or other administrative fees. With an ERISA Account, these payments are typically placed in two account types for the payment of expenses – a bookkeeping account or a plan account.

With a bookkeeping account, the record-keeper receives payments from the investment and establishes an account on their records. The record-keeper will then pay the plan’s service providers under direction from a plan administrator or fiduciary. While in a plan account, the record-keeper receives the payments but then transfers all or some of the payments to the plan. The plan administrator would then be responsible for paying the plan’s service providers and then allocating any excess amounts to plan participants at year end.

In 2013, the Department of Labor (DOL) issued an Advisory Opinion ( that provides some further insight into these accounts and whether either of these account types should be considered plan assets.  The DOL noted that “Title I of ERISA does not expressly describe what constitutes assets of an employee benefit plan”, thus the DOL “has indicated that the assets of an employee benefit plan generally are to be identified on the basis of ordinary notions of property rights”. The DOL notes that the accounts might be plan assets depending on the arrangement and communications between the record-keeper and the plan. But, the circumstance of a bookkeeping account, described above, doesn’t lead the DOL to believe that the account is a plan asset until the plan receives the funds. Based on the wording of the agreement, the plan might have a claim against the record-keeper for the amount owed, which would represent a plan asset. While the plan account, described above, would be considered a plan asset as the payments were received by the plan.

While every agreement is different, the above should provide a general basis of whether an ERISA Account should be considered assets of the employee benefit plan.

By Kevin C. Bach, CPA, CVA

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Plan Fiduciary: Important Tasks and Dates to Remember

Posted on February 4 2014 by admin

Are you a benefit plan fiduciary, or maybe you are the administrator for a benefit plan and work closely with the plan fiduciary? If you are, then hopefully this article will provide some key dates and tasks to remember; or, if you are currently aware of all these dates and tasks, then hopefully this article provides some peace of mind that you are meeting your fiduciary responsibilities. (However – please note – this article is not meant to cover/explain all key dates and fiduciary responsibilities). 

Key Responsibilities

1) Have you scheduled your 2013 plan year performance review? (Assuming your plan year end is 12/31/2013).  Be sure to invite your third party administrators to attend, and maybe even your plan auditors. You should also review your plan’s investments and ensure they are still practical and supportive of your plan’s investment policies and strategies. 

2) Be sure to re-evaluate all goals and objectives that you established at the beginning of the year. (I.e. increase employee deferral participation rates, provide more educational workshops, and track your employees’ usage of the third party administrator’s website resources).

3) Review any plan amendments that were signed in the prior plan year and evaluate the results to the expected outcomes.  Also, start planning and considering new regulations that may require 2014 amendments.

4) Did your employer acquire another company, or maybe your employer was acquired. Did you consider the necessary plan amendments and documents needed?

5) Have you been with the same third party service provider for more than a few years? Are you still comfortable that they are providing the required level of service at the most affordable and/or acceptable fee rates? 

6) Be sure to review all the reports that were provided by your third party administrator for reasonableness and accuracy. (Trust statements, administrative expenses, loan reports, distribution and contribution reports, etc.)

7) Did you address the auditor comments from the prior year audit? 

Key Dates (most are assuming a December 31, 2013 year-end)                                                  *(reference

1) January 31, 2014 is the deadline for mailing IRS Forms 1099-R to those participants that had distributions made in the prior plan year.

2) February 28, 2014 is the deadline for filing the IRS Forms 1099-R with the IRS.

3) March 15, 2014 is the deadline for issuing distributions to those participants who failed the compliance ADP/ACP tests (if applicable).

4) March 31, 2014 is the deadline for reporting excise taxes for the late return of excess distributions using IRS Form 5330.

5) April 15, 2014 is the deadline for corrective distributions of excess deferrals.

6) July 31, 2014 is the deadline for filing Form 5558 with the IRS to request a 2.5 month extension in the filing of Form 5500/8955-SSA, and independent auditors report (if large plan filer).

7) July 31, 2014 is the deadline for filing Form 5500/8955-SSA and independent auditors report (if large plan filer), if not extending filing.

8) September 30, 2014 is the deadline for distributing the Summary Annual Report (often called SAR) to plan participants, assuming a 2.5 month extension was not requested from the IRS.

9) October 15, 2014 is the deadline to file Form 5500/8955-SSA with the Department of Labor for plans that filed the extension 5558 (see #6 directly above).

10) December 15, 2014 is the deadline for distributing the Summary Annual Report assuming the 2.5 month extension was filed (see #8 directly above).

If you have any questions on the key tasks or key dates noted above, feel free to contact us.

Victor L. Fuentes

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Finding information on employee benefit plans can be difficult and time consuming. As a service to our clients, and other interested parties who are involved in or in need of employee benefit services, we'll gather all of the information for you. We'll keep you up-to-date on the latest laws and regulations and we will even add our own personal insight into what else is occurring in the employee benefits world. We will provide these posts weekly and hope to get your input and feedback on the various topics. We will also share that feedback with others, as we find appropriate.

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