Does it comply with ERISA? Follow this checklist


Many companies offer some type of qualified retirement plan and, in doing so, abide by the governance guidelines of the Employee Retirement Income Security Act of 1974, better known as ERISA. ERISA establishes minimum guidelines and standards designed to protect employees of private sector companies that participate in retirement plans and social benefits. Companies running a qualified retirement plan that are not fully compliant with ERISA could be subject to costly penalties.

If your employee retirement plan provides future retirement income or allows employees to defer earnings for retirement, then it is an ERISA plan. As an employer providing these ERISA plan benefits, ERISA also considers you a designated trustee who assumes responsibility for administering these plans and, likewise, responsibility in the event that your plans do not meet the guidelines and standards established by ERISA. .

Key takeaways

  • ERISA implements rules that prevent retirement plan fiduciaries from misusing plan assets and sets minimum standards for participation, awarding, accrual of benefits, and financing of retirement plans.
  • Companies offering qualified retirement plans to employees must comply with ERISA to maintain tax privilege status and will often seek a third-party administrator to ensure all guidelines are met.
  • Compliance with ERISA involves both start-up procedures and maintenance of ongoing requirements.

Comply with ERISA

Meeting ERISA’s compliance requirements doesn’t have to be too burdensome. While there are many requirements, a good third-party administrator (TPA) can take on much of the burden. Many of the requirements are calendar based and require submission of forms by specific deadlines.

These deadlines form a checklist that can be administered by a TPA or a member of the human resources staff. Other requirements must be met on an ad hoc basis as circumstances require.

ERISA calendar checklist

Managing 401 (k) plans involves performing certain ERISA compliance tasks on an annual schedule. These are the most common tasks that should be on most companies’ checklists.

  1. First quarter of the plan year: Provide fourth quarter benefit statements to plan participants no later than 45 days after the end of the quarter. Make the employer contributions from the previous year so that a tax deduction is counted in the previous year.
  2. Second bedroom: Provide first quarter benefit statements to plan participants. Distribute excess deferrals made above the IRC Section 402 (g) limit. For plan participants who turned 72 the previous year, distribute the required minimum distributions (RMD) for the first year.
  3. Third quarter: Provide second quarter earnings statements. File Form 5500 for the prior year or file Form 5558 for a 2.5-month extension. If the plan document was changed during the previous year, distribute a new Summary Plan Description to plan participants. Distribute a summary annual report for the previous year to plan participants.
  4. Fourth trimester: Provide third quarter earnings statements. Send appropriate notices to participants, including fees or changes to a 401 (k) safe harbor plan, a qualified default investment alternative (QDIA), or self-enrollment. Correct the ADP / ACP test failures and pay a 10% excise tax.

Ongoing ERISA requirements

Some ERISA requirements are ongoing as part of plan administration or triggered by incidents. Here are some of the more common notices and guidelines that ERISA compliant companies must follow:

  • Compliance with the plan document: Make sure that the plan administration continually adheres to the terms of the plan document. The IRS considers any strict breach of the terms of the plan document to be an operational defect that, if not remedied, may result in disqualification from the plan.
  • Annual disclosure of participant fees: All plan-eligible employees, laid-off employees, and beneficiaries with an account balance must receive a participant rate disclosure every 12 months.
  • Notice of plan change: Participants must be notified of any plan change 30 to 90 days prior to the effective date of the change.
  • Opportunity to enroll: All employees who have met the plan’s age and service requirements should have the opportunity to enroll. They should receive all necessary forms and instructions along with a Summary Plan Description and any applicable notices to participants.
  • Loan compliance: Make sure outstanding loans are paid in accordance with the terms of the plan’s policy and the borrowers’ promissory note.
  • Timely deposits: Make sure employee deferrals and loan payments are deposited on time, usually at the same time as payroll tax deposits.
  • Perform quarterly cleaning: Withdraw small account balances for laid off employees. Process loan defaults and use unallocated forfeitures.

Although most of these requirements can be administered by a TPA, the employer’s plan sponsor has a fiduciary duty to ensure that they are met and performed correctly.

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Mark Holland

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