Module 9: Plan Sponsor Administrative Responsibilities

1.6 Briefly describe the following disclosure documents required under Title I of ERISA. (Retirement Plans, pp. 501-502)

(a) Summary plan description (SPD): The SPD is the booklet, folder or binder that describes the plan and is given to employees. (b) Summary of material modification (SMM): The SMM is a summary of any plan amendment or change in information that is required to be included in the SPD after the initial SPD has been issued. (c) Summary annual report (SAR): The SAR is a summary of the plan's annual financial report. (d) Benefits statements: The benefits statement is a personalized statement that must be provided to a participant either upon request or at specific intervals for various types of retirement plans.

1.5 Describe the scope of Title I of ERISA in terms of which types of plans must fulfill its requirements for the disclosure of information and which types of plans are exempt from these requirements. (Retirement Plans, p. 501)

A major aspect of Title I concerns the disclosure of information to participants and their beneficiaries and to the government. These requirements generally apply to most tax-qualified plans regardless of the number of participants involved. There are, however, a limited number of exemptions. They do not, for example, apply to unfunded excess benefit plans, which are maintained to provide employees with benefits they would otherwise have received but that were not provided under the qualified plan because of Section 415 limitations. It should be noted that this exemption is limited in scope and does not, for example, apply to so-called excess benefit plans that restore benefits lost because of the maximum limit on pay that can be taken into account when calculating plan benefits or contributions. Also, if an unfunded plan is maintained for the exclusive benefit of a "select group of management or highly compensated employees," the only disclosure requirement is that DOL be notified of the existence of the plan and the number of employees that it covers.

5.4 According to IRS, what conditions must be satisfied in order to perform various functions using electronic media? (Retirement Plans, pp. 510-511)

According to IRS, functions may be performed through the use of electronic media if the following conditions are satisfied: (a) The electronic media must be reasonably accessible to the participant. (b) The electronic form of the notice must be as understandable as the paper version. (c) The participant must be advised that he or she has the right to request and receive the notice or consent forms in paper version at no charge. (d) The system must be reasonably designed to preclude someone other than the appropriate party from giving consent (e.g., by using passwords). (e) The system must give the participant a reasonable opportunity to review, modify or rescind his or her consent before an election becomes effective. (f) The participant must be given confirmation of his or her consent and the terms thereof either through paper or electronic media.

2.5 What requirements does ERISA mandate in terms of the writing style of the SPD, and what requirements are imposed if significant numbers of an employer's workforce are literate only in a language other than English? (Retirement Plans, p. 505)

All of the information in the SPD must be "written in a manner calculated to be understood by the average plan participant" and should be "sufficiently accurate and comprehensive" to inform employees and beneficiaries of their rights and obligations under the plan. The explanations provided by legal plan texts and insurance contracts ordinarily do not meet these standards. DOL regulations recommend the use of simple sentences, clarifying examples, clear and liberal cross references, and a table of contents in the SPD. The use of type is important; varying sizes and styles of type may not be used when they may mislead employees. If a plan covers 500 or more people who are literate only in a language other than English, or if 10% or more of the participants working at a "distinct physical place of business" are literate only in a non-English language (25% or more where the plan covers fewer than 100 participants), the SPD must include a prominent notice in the familiar language offering assistance—which may be oral—in understanding the plan.

1.1 Recognizing that the scope and function of employee benefits administration differ within various organizations, list the core activities that are inherent in employee benefits management generally. (Reading A, Overview of Plan Administration, Study Guide Module 9, p. 21)

Although the scope and function of employee benefits administration differ within various organizations, certain core activities are inherent in benefits management generally. The following activities generally must occur: (a) Benefits plan design (b) Benefits plan delivery (c) Benefits policy formulation (d) Communications (e) Applying technology (f) Cost management and resource controls (g) Management reporting (h) Legal and regulatory compliance (i) Monitoring the external environment.

3.5 What are a plan sponsor's responsibilities in responding to a claim for benefits under a plan if the claim is a denial of benefits? (Retirement Plans, p. 508)

Anyone denied a claim under any plan is entitled to a written statement giving the reasons for the denial, usually within 90 days. This explanation should be a clear, comprehensible statement of the specific reasons for the denial of the claim. The explanation also must include a description of any material or information necessary for the claimant to improve the claim and the reasons this additional material is needed. Also in the explanation there should be a full description of the plan's appeal procedure. The claimant must be given at least 60 days thereafter in which to appeal the claim and is entitled to a final decision in writing within 60 days of the appeal (120 days in special circumstances).

3.4 Describe the DOL regulations around fee disclosure for plan sponsors/fiduciaries and plan participants. (Retirement Plans, p. 507)

Beginning in 2012, covered service providers and plan fiduciaries need to disclose retirement plan fees so that plan participants can more easily understand the costs related to plan investments that they select under their retirement plan options. There are two sets of regulations related to fees. The first regulations require those providing services to pension, profit-sharing, 401(k) and 403(b) plans subject to ERISA to disclose in a written form the services they provide and the total compensation they receive either directly from the plan/plan sponsor or indirectly from a source other than the plan/plan sponsor. The second regulations are those that mandate disclosure from plan sponsors to plan participants or beneficiaries. The two categories of information that plan sponsors must provide are: (1) Plan-related information, including general plan information, administrative expense information and individual expense information (2) Investment-related information, including performance data, benchmarking information, fee and expense information, Internet access to investment-related information and a glossary to assist participants with investment-related terminology.

4.3 Discuss the relevant penalties provided under ERISA should a plan sponsor violate the disclosure requirements imposed by the law. (Retirement Plans, p. 509)

ERISA provides for a number of penalties for violation of the disclosure requirements. Among the penalties are the following: (a) If a plan administrator does not fill a participant's or beneficiary's request for information to which he or she is entitled under the plan within 30 days, the plan administrator may be personally liable to the individual who made the request for a fine of up to $112 per day. (b) Willful violation of any of the reporting and disclosure provisions may incur a criminal penalty of up to a $5,000 fine and/or one year in prison for an individual and up to a $100,000 fine for a corporation. (c) Civil actions may be brought against the plan administrator by participants or beneficiaries to obtain information to which they are entitled under their plan, to enforce their rights under the plan or to clarify their rights to future benefits under the plan. (d) Civil action also may be brought by the Secretary of Labor, a participant, a beneficiary or another fiduciary against an individual who breaches his or her fiduciary duty. It is expected that random audits will be performed continually and that a team of investigators will follow up on all discrepancies found and all complaints filed by plan participants or beneficiaries. Records now are required to be kept for a period of six years after the documents are due for filing, even for those plans that are exempt from filing.

5.2 If a plan sponsor wants to use electronic media to fulfill its reporting and disclosure requirements, what conditions must be met? (Retirement Plans, pp. 509-510)

Electronic delivery may be used if the employee has access to the employer's computer system where the employee is reasonably expected to perform his or her duties. Access to the computer system must be an integral part of the employee's duties. Providing access to electronic documents using a computer kiosk in a common area would not meet this requirement. Use of electronic media is permitted for disclosure to nonemployees as long as these individuals provide an address for electronic delivery of documents and affirmatively consent to the electronic disclosure in a manner that reasonably demonstrates the individual's ability to access information in electronic form. Nonemployees must give this consent after receiving a statement from the plan sponsor explaining the electronic delivery system and the hardware and software needed to use it. Additionally, all of the following conditions must be met: (a) The administrator must take appropriate and necessary measures to ensure that the system for furnishing the document results in actual receipt by participants of the transmitted information and documents. (b) Each participant must be provided with notice, through electronic means or in writing, apprising the participant of the document to be furnished electronically, the significance of the document and the participant's right to request and receive a paper copy of the document. (c) On request, the plan administrator must provide the document in paper form to a participant. (d) The electronically furnished version of the document must be the same in all material respects as the paper version. (e) The electronically furnished document must satisfy all other requirements with respect to the substance and presentation required to be in the paper version of such a document. (f) When a disclosure includes personal information relating to an individual's accounts or benefits, the plan administrator must take reasonable and appropriate steps to safeguard the confidentiality of the information.

2.2 Although PPA did not change the requirement to supply a benefit statement upon request to a plan participant within any 12-month period, how did it expand the need to supply such statements and with what frequency for various types of retirement plans? (Retirement Plans, p. 502)

Historically a plan sponsor was required to supply a benefit statement to a participant or beneficiary upon request, although the employer was not required to provide more than one statement in every 12-month period. PPA modified the requirements for benefit statements, expanding the need for issuance beyond the need to fulfill a plan member's request in any 12-month period beginning after December 31, 2006. Under PPA rules: (a) If a participant in a defined contribution plan is entitled to direct plan investments, he or she must receive a benefit statement once per quarter. (b) If a participant in a defined contribution plan is not entitled to direct plan investments, he or she must receive a benefit statement once per year. (c) For an active, vested participant in a defined benefit plan, the plan sponsor must provide either (1) a benefit statement once every three years or (2) an annual notice describing the availability of a benefit statement and the manner in which the participant can obtain a benefit statement.

5.3 Has IRS given any guidance on whether plan sponsors can perform plan transactions electronically without jeopardizing the plan's qualified status? (Retirement Plans, p. 510)

IRS has stated in Notice 99-1 that where IRC or regulations do not specify how a particular transaction is to be conducted (e.g., in writing), then a plan may perform the transaction electronically without jeopardizing the plan's qualified status under IRC. IRS provided various examples of activities that can be performed with the assistance of electronic media. The enumerated actions include the following: (a) Enrolling participants in a plan (b) Designating employee contribution rates (c) Designating beneficiaries (except where spousal consent is required) (d) Designating investment allocation of future contributions and currently held assets (e) Receiving and responding to participant information requests (f) Electing direct rollovers. With respect to those plan activities for which IRS has detailed a specific means of execution, electronic media may not be used unless IRS has issued specific guidance permitting such use.

2.3 In addition to the aforementioned benefit statement that must be supplied upon request, list other items that must be given to employees upon request and/or made available for examination. (Retirement Plans, p. 503)

In addition to benefit statements, there are other items that must be given to employees upon request and/or made available for examination at the principal office of the plan administrator and at other locations convenient for participants. These items include: (a) Supporting plan documents (b) The complete application made to IRS for determination of the plan's taxqualified status (c) A complete copy of the plan's annual financial report (d) A plan termination report (IRS Form 5310) should the plan be terminated. The locations at which documents must be made available include any distinct physical location where business is performed and in which at least 50 participants work. Plan materials need not be kept at each location as long as they can be provided there within ten working days after a request for disclosure. The employer may charge for reproduction of all materials requested unless the material falls in a category where it must be automatically furnished. Any item automatically distributed by mail must be sent by a class of mail that ensures timely delivery

2.1 Explain how PPA modified filing requirements in connection with a plan's annual financial report to make this information more accessible to parties interested in this information. (Retirement Plans, p. 502)

PPA modified filing requirements in connection with the plan's annual financial report (filed using Form 5500) to make this information more accessible and readily available to parties interested in this information. PPA requires that certain annual report information be filed in an electronic format for Internet display by DOL. DOL must post the information to the Internet website within 90 days of the filing. This information must also be displayed on any employee intranet website maintained by the plan sponsor.

1.2 What part does plan complexity play in making communication of employee benefits a challenge for plan sponsors? (Reading A, Overview of Plan Administration, Study Guide Module 9, p. 22)

Plan complexity makes communicating employee benefits a challenge for plan sponsors. Increased investment choices with participant-directed accounts, multiple program choices in flexible benefits programs, corporate mergers, and continuing market, technology and legal changes contribute to the complexity.

3.2 What is contained in a plan document, and do participants and beneficiaries have access to this document? (Retirement Plans, p. 506)

Plan documents include the text of the actual plan itself and any collective bargaining agreement, trust agreement, contract or other document under which the plan is established or operated. Plan participants and beneficiaries are entitled to receive copies of these documents within 30 days of making a written request. DOL may request copies of these documents at any time.

5.1 Explain the extent to which DOL has clarified the ability of plan administrators to disclose plan information using electronic media. (Retirement Plans, p. 509)

Previously, safe harbors were only provided when issuing SPDs, SMMs and SARs. The final regulations issued in April 2002 expanded the scope of safe harbors to all ERISA Title I disclosures. Such items as pension plan investment information, material on pension plan loans, responses to written requests from plan participants and beneficiaries, and notices relating to qualified domestic relations orders may now be conveyed in electronic form. Compliance with the regulation meets the general ERISA requirement that disclosure be "reasonably calculated to ensure actual receipt.

2.4 Describe the time intervals within which SPDs must be distributed to employees and beneficiaries, the time intervals within which SPDs must be updated and the overall need for the SPD to be in permanent form and current. (Retirement Plans, p. 503)

The SPD must be given to new employees within 90 days after they become participants and to beneficiaries within 90 days after they start receiving benefits. For new plans, the initial SPD must be given to participants within 120 days after establishment of the plan. New, complete SPDs must be filed and distributed at least every ten years. If there have been material changes since the last SPD was issued, however, the employer must file and distribute a new SPD every five years. The SPD must be in permanent form and must be current regarding all aspects of the plan and the information required by Title I of ERISA.

3.1 Discuss the intent of a plan's annual financial report and how this intent influences the information disclosed. Additionally, comment on the necessity to engage the services of an independent qualified public accountant. (Retirement Plans, p. 505)

The annual report is designed to require a complete disclosure of all financial information relevant to the operation of the plan. Thus, for example, it includes items such as a statement of assets and liabilities presented by category and valued at current market prices, changes in assets and liabilities during the year, and a statement of receipts and disbursements. It requests details, where applicable, for transactions with parties in interest, loans and leases in default or uncollectible, and certain reportable transactions (e.g., transactions involving in excess of 3% of the current value of plan assets). The report also requires information on plan changes made during the reporting period and on employees included or excluded from participation. Certain financial statements in the report have to be certified by an independent qualified public accountant. Insurance companies and banks are required, within 120 days after the end of the plan year, to furnish any information necessary for the plan administrator to complete the annual report. Plans that are fully insured are granted limited exemptions. These plans do not have to complete the financial information sections of the form, nor need they engage an accountant for audit or include an accountant's opinion. Plans with fewer than 100 participants have less complex filing requirements for their Form 5500.

1.4 Explain the parallels between the tax law provisions within the Internal Revenue Code (IRC) and the labor law provisions within ERISA, as well as the two key labor law areas that have no corresponding sections within IRC. (Retirement Plans, p. 501)

The labor law provisions of ERISA contained in Title I of the act include many provisions that are virtually identical to the tax law provisions passed at the same time. Thus, for example, Title I has minimum participation, funding and vesting requirements, as well as joint and survivor protection for the spouses of employees. For the most part, however, jurisdiction and administration of these provisions have been assigned to the Internal Revenue Service (IRS) under the tax provisions—a notable exception being that the Department of Labor (DOL) was given jurisdiction over the determination of service for eligibility, vesting and benefit accrual. Title I, however, contains important provisions concerning two key areas: (1) reporting and disclosure and (2) fiduciary responsibilities. Except for some restrictions on prohibited transactions, there is no counterpart for these provisions in the tax law.

1.3 Describe the dual standards a plan sponsor must be concerned with regarding employee benefits communications. (Reading A, Overview of Plan Administration, Study Guide Module 9, p. 22)

There are dual standards to meet in benefits communications. The maximum standards are those the company sets for creating a proper understanding and use of the plans, and the minimum standard is specified by the Employee Retirement Income Security Act (ERISA) for meeting the legal compliance requirements for disclosure to plan participants and beneficiaries. The primary emphasis of Module 9 is in understanding the ERISA requirements for disclosure to plan participants and their beneficiaries.

3.3 Describe the changes made by PPA in terms of the content requirements for the personal benefits statement for retirement plans. (Retirement Plans, p. 506)

Traditionally, plan participants and beneficiaries could request in writing a statement of their own benefits, but not more often than once in any 12-month period. The statement would include the total benefits accrued and the portion, if any, that was vested or, if benefits were not vested, the earliest date on which they would become vested. While still retaining the right to request a benefit statement within any 12-month period, PPA expanded issuance requirements as described in Learning Objective 2.2. Additionally, PPA added a number of substantive requirements for the content of personal benefit statements. If a participant can direct plan investments, the benefit statement must provide the following: (a) Information explaining any restrictions on the right to direct investments (b) An explanation on the importance of diversifying investments (c) A statement cautioning participants on the risk of holding more than 20% of a portfolio in the securities of any single entity, such as employer securities. For a defined benefit plan, the benefit statement must include: (a) An explanation of any permitted disparity under Section 401(l) or of a flooroffset arrangement.

4.1 What must a plan sponsor do to fulfill its obligations relative to joint and survivor notifications? (Retirement Plans, p. 508)

Under defined benefit pension plans and some defined contribution plans, each participant must be informed, individually and in writing, of the right to elect or reject both pre- and postretirement survivor benefits. Timing for notification as to postretirement survivor benefits is nine months before the earliest retirement date under the plan. Notification for preretirement survivor benefits must be provided between the first day of the plan year in which the participant becomes the age of 32 and the end of the plan year in which he or she becomes the age of 35. If an employee is over the age of 32 when hired, notification must be provided within three years after that employee becomes a plan participant. If a vested participant terminates employment before the age of 32, notice must be provided within one year after the termination date. The notifications must include enough information about the potential financial impact on the individual's own benefit for the participant to make an informed decision. Contents of the notification are specified by regulations.

4.2 What must a plan administrator do when a distribution from a qualified plan is eligible to be rolled over into an individual retirement account (IRA) or another employer's qualified plan? (Retirement Plans, pp. 508-509)

When a distribution from a qualified plan is eligible to be rolled over into an IRA or another employer's qualified plan, the plan administrator, within a reasonable period of time before making the distribution, must send a rollover notification to the participant or beneficiary explaining the rollover and direct transfer rules, the taxwithholding requirements on distributions that are not directly transferred, and how taxes can be reduced or deferred (e.g., rollover). In general, the timing of the notice must meet the same requirements that apply to notifying participants of their rights as to the qualified joint and survivor annuity rules under a defined benefit plan. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) expanded notice requirements for eligible rollover distributions by requiring that the written explanation provided to recipients of eligible plan rollover distributions include a discussion of the potential restrictions and tax consequences that may apply to distributions from the new plan to which the distribution is rolled over that are different from those applicable to the distributing plan. EGTRRA also made a direct rollover the default option for involuntary distributions that exceed $1,000 when the qualified retirement plan provides that nonforfeitable accrued benefits that do not exceed $5,000 must be distributed immediately.