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How to Avoid 401(k) and Pension Plan Disasters

Date post: 07-Aug-2015
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Page 1: How to Avoid 401(k) and Pension Plan Disasters
Page 2: How to Avoid 401(k) and Pension Plan Disasters
Page 3: How to Avoid 401(k) and Pension Plan Disasters

4/23/2015

Page 4: How to Avoid 401(k) and Pension Plan Disasters

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Page 5: How to Avoid 401(k) and Pension Plan Disasters
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How to Avoid 401(k) and Pension Plan Disasters

Presented by:Dan Sturm, Principal

Shalane Cohen, Senior ManagerDanielle Guinter, Senior Manager

Page 7: How to Avoid 401(k) and Pension Plan Disasters

INTRODUCTIONS

Dan Sturm, CPA• Principal • Employee Benefit Plan

Audit Services Coordinator

• Key leader of the firm’s external audit segment

Shalane Cohen, CPA• Senior Manager• Key member of the

firm’s audit practice• Performs employee

benefit plan audits and serves manufacturing and nonprofit clients

Danielle Guinter, CPA, MAcc• Senior Manager• Performs employee benefit

plan audits and serves construction and manufacturing clients

Page 8: How to Avoid 401(k) and Pension Plan Disasters

• Learn how you, your management, and your HR team can prevent some of the costly mistakes associated with running your 401(k) and pension plans• Learn the steps to take when sponsoring a retirement plan to avoid

problems down the road• Learn what to do when you come across a problem that has

already happened.

OBJECTIVES

Page 9: How to Avoid 401(k) and Pension Plan Disasters

• Employee Benefits Security Administration (EBSA)authority • EBSA recoveries • Investigations • Indictment

2014 DOL STATISTICS

Page 10: How to Avoid 401(k) and Pension Plan Disasters

• Failing to operate the plan prudently and for the exclusive benefit of participants;• Using plan assets to benefit certain related parties to the plan, including the plan

administrator, the plan sponsor, and parties related to these individuals; • Failing to properly value plan assets at their current fair market value, or to hold plan

assets in trust; • Failing to follow the terms of the plan (unless inconsistent with ERISA); • Failing to properly select and monitor service providers.

ERISA CIVIL VIOLATION EXAMPLES

Page 11: How to Avoid 401(k) and Pension Plan Disasters

•Major Case Enforcement

• Employee Contributions Initiative

DOL NATIONAL ENFORCEMENT PRIORITIES

Page 12: How to Avoid 401(k) and Pension Plan Disasters

• Contributory Plans Criminal Project• Fiduciary Service Provider Compensation

Project• Rapid ERISA Action Team• Employee Stock Ownership Plans• Voluntary Fiduciary Correction Program

DOL NATIONAL ENFORCEMENT PROJECTS

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• Auditor Selection

• Plan Document & Summary Plan Description

• Plan Operations

STRAIGHT FROM THE DOL

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CASE #1 - CHURCH PLANS

Overall v. Ascension & Kaplan v. Saint Peter’s Healthcare Sys.

Overall decision in 2014 back in favor of church-affiliated organizations, church plans not established and created directly by a church.

Page 15: How to Avoid 401(k) and Pension Plan Disasters

CASE #2 – SERVICE PROVIDER

Benefit Consultants, Inc. 3/18/14

• During 1998 to 2013 Ricky Lynn Richardson stole approximately $4.3m from 4 pension plans.• Provided administrative services.• Misdirected or misappropriated money and provided customers with false

investment statements.

Page 16: How to Avoid 401(k) and Pension Plan Disasters

CASE #3 – SERVICE PROVIDER

Advanced Administration, Inc. 6/3/14

• TPA responsible for processing member payments and paying plan bills.• Wrote 46 checks from the plan totaling $427k to individuals that were not

members of the plan.

Page 17: How to Avoid 401(k) and Pension Plan Disasters

CASE #4 – EXECUTIVE CHAIRMAN

Innovative Logistics Technology, Inc. 9/11/14

• Head of defense contracting company.• Theft of more than $186k from plan.• Withheld amounts from employee paychecks and never contributed the

amounts to the investment accounts.• Purchased an executive suite at FedEx Field and also sponsored the Virginia

Gold Cup.

Page 18: How to Avoid 401(k) and Pension Plan Disasters

CASE #5 – TRUSTEE & FIDUCIARY

G Fiduciary (G Fid) Retirement income Security Plan 7/31/13

• Misappropriated over $5m of assets from 2 plans for personal use.• On 12 occasions directed the record-keeper to wire transfer plan assets at Charles

Schwab to accounts he controlled.• Renovated personal residence, built a pool, bought cars, ATV’s, motorcycles, and a tractor.• On a separate occasion directed another record keeper to wire $3m to an escrow account

and also directed the record keeper to describe the transaction as a fixed income bank note.

Page 19: How to Avoid 401(k) and Pension Plan Disasters

IRS FOCUS ON INTERNAL CONTROLS

Monika Templeman, director of Employee Plans Examinations at the IRS stated:

If a plan is selected for audit by the IRS, the EP agent conducting the retirement-plan examination will begin by evaluating the effectiveness of the plan’s internal controls to determine whether to perform a focused audit – that is, just look at three to five issues – or expand the scope of the examination. In other words, based on the strength of the plan’s internal controls, the agent will decide to examine more or less of the return than originally planned.

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INTERNAL CONTROL

The IRS recommends ensuring internal controls include procedures for: • Plan operations review

o Verify that the plan is operated according to written terms

• Plan document updateso Meet with service providers to see if the plan document needs updating for

law changes or changes in plan operations

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COMMON MISTAKES

Updated December 2014 as a result of communication problems between the plan sponsor and TPA• Failure to timely amend the plan or follow the terms of the plan • Failure to review in-service, termination and loan distribution forms to

make sure they follow the plan terms• Failure to count all eligible employees in testing

Page 22: How to Avoid 401(k) and Pension Plan Disasters

5500 ERRORS

• Results of IRS Fraud Projecto Weak internal controlso Selected in error ?????

• Pension feature codes• Incorrect # of plan participants• Errors related to termination of a plan

Page 23: How to Avoid 401(k) and Pension Plan Disasters

HOW TO CORRECT

First determine type of error

• Plan Document Failure o Recommend guidance of an ERISA attorney

• Operation Errorso Typically the ones we see

Page 24: How to Avoid 401(k) and Pension Plan Disasters

EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM

• Self-Correction Program (SCP) – no requirement to notify IRS; for operational failures• Voluntary Correction Program (VCP) – Operational failures and

some plan document failures• Audit Closing Agreement Program (Audit CAP) – Result of an IRS

audit finding

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