Contents:
• All retirement plans need ERISA fiduciary bond
• Rules for black-out periods
• SPD reminder
• 401(k) deposits need to be made within a few days
All retirement plans need ERISA fiduciary bond
The Employee Retirement Income Security Act §412 requires that every fiduciary of an employee benefit plan and anyone who handles funds or other properties of the plan must be bonded. The term "funds or other properties" is intended to encompass all properties that are or may be used as a source for the payment of benefits to plan participants, including payroll deductions and company contributions paid to the trust, as well as assets of the trust.
The bond must cover at least 10 percent of the amount of assets of the plan in which market values are readily available and 100 percent of assets that are not independently valued on a regular and/or consistent basis (e.g. gems, precious metals, real estate, etc.). For the assets requiring 10 percent for a bond, the amount of the bond may not be for less than $1,000 and need not be for more than $500,000. The rest of the assets' value will need the full value as the minimum and maximum amount of the bond.
The bond should show the name of the specific individual or group of individuals covered and should show the name of the specific retirement plan.
Bonds are usually written for a period of one, two or three years; therefore, the bond should be written for 10% and/or 100% of expected assets at the end of the bonding period.
Your insurance agent should be informed about these requirements and be able to obtain an ERISA bond for you on the Plan.
Once you receive your fiduciary bond, please provide Recordkeeping & Consulting with a copy of the "Declaration Page" or cover page of the bond that specifies the coverage amount, the period of the bond’s coverage, the insurer and for whom the bond protects [the plan name; the trustees; etc.].
If you do not have an agent to obtain a bond, you may purchase a bond online through Colonial Surety Company. There is also a bond calculator that you can use. See www.colonialsurety.com
Rules Published for Blackout Periods
Final rules have been published to implement a federal law requiring 401(k) plans to give workers a 30-day advance notice of “blackout periods” when their rights to direct investments, take loans or obtain distributions are suspended. The final rules were announced by the DOL in 2003.
Blackout periods usually occur when a plan changes to a new record keeper or changes investment options, or may be making changes for a corporate merger or acquisition.
Under the rules, plan administrators must provide blackout notices that contain the reasons for the blackout, a description of the workers’ rights that will be suspended, the length of the blackout period and a statement advising workers to evaluate their current investments based on their inability to direct or diversify assets during the blackout period.
SPD reminder
Every fifth year, a retirement plan administrator must furnish to plan participants, and any beneficiaries receiving benefits, an updated Summary Plan Description (SPD) that integrates all plan amendments made during the five-year period. This is only required if the plan has been amended.
However, all plan participants, and any beneficiaries receiving benefits, must receive a copy of the SPD every 10th year. This is required even if there were no plan amendments.
All RCC plan documents recently have been updated, or soon will be completed, with a new SPD. These all start new five-year and 10-year cycles as mentioned above.
401(k) deposits need to be made within a few days
Employers should make every effort to assure timely deposits of 401(k) deferrals to avoid tax penalties for late deposits. Within a few days after the payroll period would be considered timely.
Regulations require an employer to deposit elective deferrals on the earlier of (1) the date the employer reasonably could have segregated the elective deferrals from its own funds, or (2) the 15th business day of the month following the month the employer withheld the deferrals.
If the 5500 filing indicates that a deposit of the funds was not timely, the employer acknowledges, according to the DOL, that it has breached its fiduciary duty and committed a "prohibited transaction." The employer must correct this breach of duty by making up deferrals and lost earnings from the late deferrals.
Based on the DOL's Voluntary Fiduciary Correction Program (VFCP), an employer must make a contribution for the lost earnings in the amount equal to the greater of (1) the plan's rate of earnings (or the employer's profit on the use of deferrals if greater), or (2) the interest rate under Code 6621 (a)(2). Without the VFCP, the employer would need to report on Form 5330 and pay a 15 percent excise tax on the value of the use of the money.
When the 5500 filing indicates that deposits were not timely, the employer will probably receive a letter from the DOL or possibly will be subject to a DOL audit. The letter will ask the employer if it chooses to file under the Voluntary Fiduciary Correction Program or will ask for an explanation if the employer has corrected the problem.
