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Beware of These Common ERISA Compliance Errors

Posted by Corey F. Schechter | Jun 25, 2018

The Employee Retirement Income Security Act (ERISA) is a complex and continually changing federal law that applies to most private sector employee benefit plans. When companies unintentionally run afoul of ERISA regulations it can expose them to fines, penalties, and costly litigation. Understanding these ERISA problem areas can help you avoid making these common compliance mistakes.

ERISA is the federal law that sets forth the minimum standards for most private employer benefit plans, including defined contribution plans such as 401(k)s, Employee Stock Ownership Plans (ESOPs), and Profit Sharing Plans. Employers who provide these, and other qualifying benefit plans, are required to stay in compliance with ERISA laws and regulations.

Penalties for ERISA violations may include fines, payments to plan participants, or injunctive relief requiring changes to the company procedures. Fiduciary violations may subject the plan fiduciary to personal liability for losses to plan participants. In addition, willful ERISA violations can sometimes lead to criminal penalties.

Following Plan Documents and Communicating Changes

Plan documents are expected to stay up to date with the latest ERISA and tax regulations, as is the plan implementation. Often, plan operations do not match up with the plan terms. This includes the term in plan documents and the summary plan description. Changes in the plan should also be communicated to plan participants. A summary of material modifications should be given to plan participants within 210 days after the end of the plan year in which the modifications were adopted.

Calculating Compensation

Employers may have different ideas of what is included in compensation. Compensation for the purpose of contributions, matching contributions, maximum annual additions, and elective deferrals should be clearly defined. This includes determining whether bonuses, pre-tax health insurance premiums, commissions and tips, or fees for professional services are included as compensation. When plan documents are changed or updated, contributions need to follow any plan changes.

Eligible Participants

Plan documents should have a definition of employees and what is required for an employee to become eligible to participate in the plan. While some employers include all employees, others limit participation to full-time workers or require a certain amount of time with the company before an employee is eligible. Any problems with the way hours are calculated, hiring dates, or compensation calculations could leave eligible employees excluded.

ERISA Reporting and Recordkeeping

Employers are required to maintain records relating to employee benefit plans under ERISA. All records related to government filings are to be retained and kept available for examination for a minimum of six years after the filing date. In addition, plans with 100 participants or more have to file Form 5500 Annual Returns/Reports of Employee Benefit Plan. Smaller plans must also file annual reports, with plans with less than 100 participants filing Form 5500-SF.

Correcting ERISA Compliance Mistakes

The good news for employers is that many ERISA compliance problems can be corrected through voluntary compliance to reduce the potential for fines and penalties. The Department of Labor has the Delinquent Filer Voluntary Compliance Program (DFVCP) and the Voluntary Fiduciary Correction Program (VFCP). Through these programs, Plan administrators can file delinquent annual reports through the DFVCP, and the VFCP allows fiduciaries to take corrective measures resulting from certain enumerated fiduciary violations and seek relief from enforcement actions. Moreover, the Internal Revenue Service, through the Employee Plans Compliance Resolution System (EPCRS), has the Voluntary Compliance Program (VCP) which allows plan sponsors and other plan fiduciaries to correct failures in the plan's operational compliance with applicable laws or its own terms.

San Diego ERISA Compliance Attorneys

If you are a business owner or plan fiduciary with questions about whether your employee benefit plan is in compliance, the law firm of Butterfield Schechter LLP is here to help. We are San Diego County's largest law firm with a focus on employee benefits law. Contact our office today with any questions on how we can help you and your business stay in compliance with ERISA and correct any past regulatory issues.

About the Author

Corey F. Schechter

Corey Schechter practices in the areas of Employee Benefits, Employee Stock Ownership Plans, Pension and Profit Sharing Plans, ERISA, ERISA Litigation, Business Law, Qualified Domestic Relations Orders (QDROs), and Employment and Labor Law.


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