President Bush recently commented that the rules governing employee benefit plans are too complicated.
Almost everyone in America, including professionals, agrees with the President about that! For most companies, the confusing maze of regulations necessary in order to provide retirement, health, and other benefits to its employees can seem daunting.
After years of advising companies, I have assembled a list of ways companies can get in trouble regarding employee benefits.
Allow me to share with you some of the most common mistakes.
5.
Failure to take responsibility for retirement plan investments.
In every employer-sponsored retirement plan, the employer has ultimate legal responsibility for investment of plan assets.
Employers should not assume that brokerage firms or other investment advisors are liable as fiduciaries for poor investment choices.
This is true even if the advisor claims to be a "fiduciary" over the investments and charges extra for such services.
In most cases the small print reveals that the advisor is only a "directed trustee," which does not make him a fiduciary, or alleviate the employer's responsibility for poor investment choices of plan assets.
Only an "investment manager" under ERISA who has agreed in writing to be an ERISA fiduciary can relieve the named fiduciary from liability for investment decisions and due to the almost certain likelihood of future lawsuits, almost no advisor wants to be an ERISA fiduciary!
4.
Carelessness regarding disseminating COBRA Notices.
Numerous employers, including a major local bank, have been caught being sloppy with their COBRA compliance.
Federal law requires most employers to offer continued health coverage after the employer's health plan coverage would otherwise end.
The courts are notably pro-employee when presented with claims under COBRA that otherwise leave an employee without health insurance.
The courts have seized upon minor errors in COBRA's complex notification requirements to hold employers liable for former employees' medical expenses that might have been covered under COBRA.
The costs of sloppy COBRA compliance can be enormous.
At the slightest hint of a COBRA event, an employer should meticulously provide all COBRA notification and elections within the proper time periods.
Follow-up letters (with carefully filed copies) should be sent in all cases where former employees fail to respond to COBRA notices or fail to pay for elected COBRA coverage.
It is far cheaper to send out a COBRA notice and discover it was not needed than to fail to send out the notice and pay the employees' (potentially enormous) medical expenses.
3.
Excluding part-timers from your company's retirement plan.
An employer may exclude certain classifications of employees for example, hourlypaid employees from eligibility for retirement plans, as long as mathematical coverage tests are satisfied.
However, plans generally can't require more than 1,000 hours of service within one year for plan participation.
According to the IRS, this rule means that a plan may not have a blanket exclusion of part-time employees, even if the coverage tests are satisfied.
Although this rule has been in the retirement plan regulations for many years, it has largely been ignored by some employers.
The IRS continues remind employers about the rule and is looking out for violations.
Employers who have a policy of excluding part-timers from all benefits programs will probably need to make an exception to that policy in the case of retirement plans.
2.
Late deferrals of 401(k) contributions Employers of all sizes and types have for years misunderstood the timing requirements to remit employee contributions to 401(k) plans.
The general rule states that employee contributions must be remitted to the plan at the earliest date on which the contributions can reasonably be segregated from the employer's general assets.
In the past, consultants, payroll companies, and accountants have utilized superfluous language in the rule to advise employers that they may hold such funds for up to 45 days after it receives the employee's contribution.
This is an inadvisable practice for any employer, as the U.S.
Department of Labor has made it a priority to find employers not remitting contributions within a reasonable amount of time.
In the Internet age in which businesses currently operate, an employer should be able to forward deferrals within a few business days (if not simultaneously with the issuance of paychecks).
The DOL considers such "late" deferrals a loan to the employer from the employee, a prohibited transaction.
The company must remedy the situation by depositing the late deferrals and the lost earnings inapplicable during the time the employer held the employees' funds.
In my experience, the administrative cost necessary to correct such an error far exceeds the amount of the employees' lost earnings.
1.
Assume someone else Is liable for errors and fiduciary breaches.
Always assume that the buck stops with the employer and manage the plan accordingly.
Matthew D.
Goedert is a partner in Goedert & Associates, a Reno-based law firm, where he focuses his practice primarily on employee benefit plan matters.
Reach him at 457 Court St., Reno, 89501, 329- 9300 or mgoedert@goedertlaw.com.
