The Employment Retirement Income Security Act (ERISA) is a federal law establishing rules and regulations for employer-sponsored benefit plans, such as health insurance, retirement, deferred compensation, and profit-sharing plans. ERISA ensures employers manage such plans appropriately, protecting employees’ rights to the benefits they contributed to or earned through their work. However, ERISA’s detailed rules and regulations can lead to various compliance mistakes by employers or plan administrators. Identifying and understanding how to prevent these potential issues can help employers and plan administrators avoid potential liability to plan beneficiaries.
Failing to Provide Required Disclosures
ERISA requires employers or plan administrators to provide specific disclosures, such as a summary plan description or a summary of benefits/coverage. However, compliance mistakes can occur when employees do not receive disclosures within the timeframes required by ERISA, or disclosures have material omissions. Employers and plan administrators can prevent disclosure mistakes by utilizing a compliance calendar, automated mailing/messaging, and tracking systems to ensure plan beneficiaries receive the information they deserve.
Not Adhering to Plan Documents
Employers or plan administrators may find themselves in legal trouble by failing to adhere to plan terms, including when making determinations regarding beneficiary claims. Compliance issues may also arise when ERISA plans have outdated or noncompliant provisions that do not follow the latest rules and regulations. However, parties can avoid such problems by scheduling regular review and revision of plan provisions with experienced ERISA counsel.
Improper Plan Contributions or Vesting Violations
Employers and plan administrations can violate ERISA rules by making mistakes regarding employer contribution matching, contribution limits, or vesting schedules. Unfortunately, these mistakes may also have legal consequences for plan beneficiaries, including unforeseen tax liabilities or financial penalties due to improper contributions or withdrawals. Plan administrators can avoid such errors through periodic audits and procedures to verify calculations, which can catch errors before potential liabilities arise.
Failing Nondiscrimination Testing
The IRS conducts two types of nondiscrimination tests for 401k plans: the actual deferral percentage (ADP) and actual contribution percentage (ACP) tests. These tests ensure that rank-and-file employees (non-highly compensated employees [NHCEs]) make contributions to ERISA retirement plans proportional to officers and managers (highly compensated employees [HCEs]). The tests allow HCEs to defer more as NHCEs save more for retirement. Failing nondiscrimination testing will require employers to take corrective action to ensure their plans can pass.
Late or Incorrect Form 5500s
The U.S. Department of Labor’s Form 5500 allows ERISA plans to satisfy their annual reporting requirements under ERISA and the Internal Revenue Code. Filing a late Form 5500 or a form with incorrect or incomplete information can lead to civil penalties. Employers and plan administrators can avoid mistakes with Form 5500s by leveraging electronic filing tools to ensure complete, timely filings. Parties can retain legal advisors experienced in ERISA matters to review filings for completeness and correctness.
Mishandling Participant Loans and Hardship Withdrawals
ERISA rules allow plan participants to take loans or hardship withdrawals from their accounts without triggering standard tax penalties for early withdrawals. However, employers and plan administrators may violate ERISA regulations by committing errors such as letting participants exceed loan limits or improperly approving withdrawal requests that do not meet hardship requirements.
Not Monitoring Service Providers
ERISA imposes fiduciary duties upon employers to monitor the third-party administrators they retain to oversee their benefits plans. However, employers may face liability to plan participants when administrators and the investment professionals they hire engage in improper conduct, such as mismanaging investments or charging excessive fees. Employers can protect themselves by regularly reviewing plan performance and provider fees and checking the market to ensure their providers’ fees align with industry standards.
Contact an ERISA Attorney Today
When you have questions about compliance with ERISA rules and regulations and how it may affect your role as a fiduciary or your rights as a beneficiary, an experienced ERISA attorney from Unruh Law can walk you through the statutory requirements. Contact our firm today for an initial consultation to discuss how our firm can help.