PLAN MONITOR ERISA PLAN DOCUMENT FILE. Instruction Manual

Transcription

1 PLAN MONITOR ERISA PLAN DOCUMENT FILE Instruction Manual

2 PLAN MONITOR ERISA PLAN DOCUMENT FILE According to the Employee Retirement Income Security Act (ERISA), employers who sponsor employee benefit plans are generally fiduciaries. The functions of a fiduciary may vary but always include the responsibility to establish policies and procedures that ensure the proper administration of the plan and prudence of the plan s investment options. DEFINITION OF FIDUCIARY UNDER ERISA: Under ERISA, a plan fiduciary is any person or other entity who either (1) exercises any discretionary authority or control over management of the plan, (2) exercises any authority or control over the management or disposition of assets, (3) renders investment advice for a fee or any other compensation, direct or indirect, with respect to any monies or other property of the plan or has any authority or responsibility to do so, or (4) has any discretionary authority or responsibility in the administration of the plan. Fiduciary Responsibilities: Government reporting, participant disclosure, bonding, benefit claim processing and maintenance of specific records Monitoring the plan s adherence to applicable law and any changes to the law Establishing a funding policy and procedure consistent with the plan s objectives Selecting and monitoring the plan s investment options Plan sponsors may take on the fiduciary duties or delegate them to others. However, the delegation of these responsibilities does not relieve the plan sponsor from their duty to monitor the delegated functions. ERISA states that any and all fiduciary decisions, duties and functions must be made solely in the interest of plan participants and their beneficiaries. Breaches of fiduciary duties or failure to perform fiduciary functions may subject a plan sponsor to liability for any damages to the plan, increased scrutiny by the Department of Labor (DOL) and civil penalties. Also, it is possible for a fiduciary to be held liable for breaches made by another fiduciary to the plan. In the event of a fiduciary breach, a plan sponsor may be sued by plan participants and their beneficiaries, the DOL and other plan fiduciaries. Considering the many legal requirements and the risks involved, employers should be focused on managing their fiduciary responsibilities appropriately. It is important for plan sponsors to become familiar with ERISA and DOL guidelines in order to establish and adhere to a prudent process designed to manage how plan decisions are made and functions monitored. It is recommended that plan sponsors keep an ERISA file in the event of an audit. This manual identifies the plan documents that must be kept on file, how those documents should be organized and how to document the policies and procedures put in place by the plan sponsor to ensure proper adherence to ERISA. This manual identifies six broad components that should be considered for the ERISA document file: Plan Documents, Reports/Tax Reporting, Statements, Investments, Plan Communications and Miscellaneous. Each component is broken down into sections that would correspond to requests for information a plan sponsor would receive from the DOL in the event of an audit. Page 2

3 PLAN DOCUMENTS Roles and Responsibilities Section Investigators will need to know who the responsible parties are and which role(s) those people are handling. In this section, keep a list of Plan managers, trustees and members of any administrative committees, along with owners of the Plan sponsor, including titles, responsibilities and contact information. Required Plan Documents Section In the event of an investigation, the DOL requires certain documents to be provided within a short time frame. A copy of each of the following documents should be kept in the Required Plan Documents Section: Plan Document (including all amendments) or the Adoption Agreement (if a prototype plan), and the Trust Agreement o In the event of an audit, the DOL will want copies of all signature pages for the above documents IRS Determination Letter Summary Plan Description (SPD) and all modifications Summary Annual Reports Summaries of Material Modifications Notices to Interested Parties Provider service contracts related to the plan o Included in this section, Plan Sponsors will want to keep specific Provider information with each contract. Those items should include points of contact information (including titles and responsibilities), agreements, management letters and fee schedules Note: Notices to Interested Parties includes required participant disclosures. ERISA requires a plan sponsor to provide copies of specific documents upon request. Failure to comply with these requests could result in a penalty against the plan sponsor for up to $110 per day per request. Fidelity Bond and Fiduciary Insurance Section ERISA Plan Fiduciaries are required to be covered by a Fidelity Bond (ERISA Bond). The bonding requirement is 10% of plan assets not to exceed $500,000 ($1 million if the plan s investment options include company stock). In this section, keep documentation of the fidelity bond (current and complete copy), including the declarations page and any riders/endorsements identifying the Plan as a named insured and specifying the amount of coverage, the period covered and the name of the surety company. Plan Fiduciaries may also purchase fiduciary insurance, if deemed appropriate. Be sure to keep a current copy of the entire policy in this section. Service Provider Contracts and Documents Section Plan Fiduciaries should keep any and all service providers contracts, policies and other documents. Documents to be kept in this section include, but are not limited to: Plan Recordkeeping/Actuarial Services Agreements Custodial Agreements Plan Administrative Agreements (if delivered by a third party other than the Plan Recordkeeper) Asset Allocation Advisory Agreements Investment Management Agreements Page 3

4 Plan Fiduciaries may want to consider splitting this section into a section for current contracts/documents and previous contracts/documents. Documentation of the Selection Processes Section ERISA states that any and all fiduciary decisions, duties and functions must be made solely in the interest of plan participants and their beneficiaries. ERISA also states that expenses incurred by the plan be reasonable for the services provided. Plan Fiduciaries should document the processes used to select the Retirement Plan Consultant or Advisor, the Plan Recordkeeper, Custodian and/or Administrator, and the Plan s investment options. For Selection of the Retirement Plan Consultant Documentation of consultant s experience in the retirement plan consulting business Documentation of consultant s assets under management Keep any capabilities presentations, sample advisory or service agreements, and other samples of tools, resources and reports the consultant intends to use or deliver Documentation of the cost of the scope(s) of services to be delivered by the consultant For Selection of the Plan Recordkeeper, Custodian and/or Administrator Plan study illustrations will show the decision maker(s) how contributions will flow to the plan participants based on different plan designs. Whether built by a Plan Recordkeeper designated to perform plan administration or by a Third Party Plan Administrator (TPA), keep the various illustrations and all notes used to select the design of the retirement plan. If plan administration is going to be performed by a TPA, be sure to document the TPA s experience, plans under management, scope of service(s) available and proposals (including costs) for services to be provided to the retirement plan. Once the plan design has been determined, be sure that all proposals from Plan Recordkeepers or Custodians are for that specific design. Be sure to keep all proposals (include scope and costs of services) received, any additional presentations, illustrations, charts, demonstrations, notes and minutes of any meetings. For Selection of Investment Options and Investment Managers This portion of the section ties closely to the section for Plan Policies, Guidelines and Other Documents. In fact, Plan Fiduciaries may choose to keep any items related to the investment selection with the Plan s Investment Policy Statement and Investment Monitoring Reports. In light of that fact, this manual will revisit this information in the plan policies, guidelines and other documents section. This section should include: Copies of prospectuses or investment fact sheets Documentation of past and current investment performance Documentation of the investment manager s experience with respect to ERISA qualified plans and with respect to a portfolio style that is prudent for the retirement plan Documentation that the investment manager is registered with the SEC or is otherwise properly licensed within the state where the plan is held If applicable, an acknowledgement in writing that the investment manager is a fiduciary with respect to the plan assets to be managed A record of past performance including a relative benchmark comparison of other managers of similar style An independent assessment of the investment manager s qualifications (may be completed by the plan consultant) Page 4

5 Plan Policies, Procedures, Guidelines and Other Documents Section ERISA Plan Fiduciaries should develop and adhere to specific policies, procedures and guidelines for various aspects of managing the Plan. Typically, Plan Fiduciaries will develop written Investment Policy Statements and Education Policy Statements. Plan Fiduciaries will also have specific written procedures for participant enrollment, distributions, rollovers, loans, claims and qualified domestic relations orders (QDROs), etc. All such policies and procedures, including accompanying documentation, should be kept in this section. Investment Policy Statement and Monitoring of Plan Investments An Investment Policy Statement (IPS) is a guide that Plan Fiduciaries develop and rely upon to select proper investments for the plan, monitor the performance of the investments and, when necessary, replace underperforming investments. The IPS should be approved by all relevant Plan Fiduciaries (including the review and approval of any necessary changes to the IPS). The IPS should include the following items: A statement of purpose of the IPS Defined roles, responsibilities and procedures, as they pertain to ERISA fiduciary standards, for all parties involved in the management of plan assets (including, but not limited to the following): o Investment Committee o Investment Advisor(s) o Investment Manager(s) o Participants Plan Investment Philosophy that details the necessary asset classes and criteria for the initial and ongoing evaluation of the investment Procedure for selection and monitoring of the investment options (investments should be evaluated on a regular basis) Frequency for reviewing the relevance of the IPS and procedure to changing IPS criteria Minutes of Investment Committee meetings should be kept in this file section and should describe the results of the analysis and actions taken by the fiduciary or committee, including, but not limited to placing investments on a watch list or ejecting and replacing investments in the line-up. If applicable, additional guidelines for the following should be included: Self-directed brokerage accounts Company stock Procedures for Participant Matters For applicable plan provisions, the Plan Fiduciaries should make the policies and procedures easily accessible to plan participants. For each that applies, Plan Fiduciaries should build an area in this file for the following participant transactions: Plan enrollment policy, procedures and forms Loan policy, procedures and forms o Include a sample of documentation for loans secured by the vested interest of individual Plan participants. (Including application forms, promissory note, amortization schedule, withholding authorization if applicable.) Distribution and Rollover procedures and forms Hardship withdrawal procedures and forms Claims procedures QDRO procedures For each of the above items, the file should contain the written policy for Plan participants, all necessary forms and documents, and contact information for the associate or department responsible for the transaction. Page 5

6 Participant Education Policy Plan Fiduciaries have a duty to ensure that all plan participants have the tools and resources needed to make wise contribution and investment decisions. All plans have strengths and weaknesses, and most plan participants need help with these important decisions. Employee education should be delivered on a specific frequency. The Education Policy should outline the frequency of employee education efforts and the availability of one-on-one meetings versus group settings. The policy should contain details for identifying and delivering appropriate and relevant information to plan participants. Other Items of Interest Bankruptcy If the company that sponsors the Plan has filed bankruptcy, please keep copies of the original bankruptcy filing, which would include, but is not limited to, the voluntary petition, all initial filing documents (schedules and statement of affairs), any additional initial filing documents which may have been required by the U. S. Trustee and any copies of interim statements and operating reports, a current list of creditors with respect to the bankruptcy, and the Plan of Reorganization. Banking Accounts for Employee Deductions Keep the signature cards from bank accounts from which employee deductions are sent. Meeting Minutes For each of the above topics, meetings will occur in a variety of formats. Within each section, be sure to collect and maintain any Fiduciary Committee Meeting Minutes and/or notes from other pertinent Plan discussions. Page 6

7 PLAN COMMUNICATIONS Plan Correspondence File Section Investigators will request to review (and perhaps receive copies) of all of the Plan s correspondence. Keeping this Plan Correspondence section complete and up-to-date would save the Plan s Fiduciaries significant time in the event of an investigation. The Plan Correspondence File should contain the following Sections: Minutes of any Plan Trust or Plan Committee meeting. (This item is relevant to multiple sections in the Plan Sponsor Document File. Copies of the Minutes or Notes from other file sections can also be kept here for easy access.) Notices to participants regarding blackout periods, if any Employee and Participant Communications o Include all participant notices and disclosures Copy of Annual Disclosure of Fees and Services Copy of Annual Participant Fee Disclosure Sample of Quarterly Participant Fee Disclosure o Include copies of enrollment kits o Include updates or changes to the investment options o Be sure to include every piece of material sent regardless of sender or medium: Plan Sponsor Letters Recordkeeper/Custodian Post cards Advisor alerts TPA, etc. Break-room poster, etc. Ongoing communication with the service providers o Keep all materials regardless of topic or service provider. Items to include here are (but not limited to): Updated contacts for participant questions or transactions Newly available participant tools and resources Updates or changes to scope(s) of services Problem resolution TAX REPORTING AND PLAN REPORTS Annual Reports Section Keep copies of the Annual Reports (Forms 5500 or 5500-C/R) with signed signature pages, together with all attachments, including (if applicable) the accountant's opinions, financial statements, notes to the financial statements, and management letters. Be sure to keep the current and all previous Form 5500 or 5500-C/R filings. Also keep copies of the most recent Annual Reports (Forms 5500 or 5500-C/R) for all other sponsored plans (health, pension, benefits, etc.). Keep all copies (current and previous) of the Summary Annual Reports. Page 7

8 PLAN STATEMENTS Plan Statements Section In the event of an investigation, the DOL is going to request a series of statements pertaining to the Plan. Plan Sponsors should keep the following statements, receipts and related notes and documents in this section. Most recent internal balance sheet (statements of assets and liabilities) for the Plan, including descriptions of all assets held and their locations; e.g., name of investment company, financial institution, etc., where trust assets are deposited. There should be no category marked "other" where assets are aggregated. Most recent Plan valuation, including a listing of participants with social security numbers, annual account allocations, and account balances (i.e., something that has the current Plan balance and number of participants) Schedules of Plan receipts and disbursements, including support documentation (account statements, check registers, canceled checks, deposit slips, wire transfer confirmations, etc.) Samples of participant statements provided to participants through the last Plan year provided for individual account plans with and without participant directed investments. Please include a sample if a participant statement has been provided to a beneficiary, as well. For defined benefit plans, please provide samples from the last year provided. If there are employee contributions to the Plan, documents that show employee contributions due and made to the Plan for each pay date. These documents should include: o A payroll summary or register showing all employee contributions (payroll deductions, loan repayments, etc.) to the Plan delineated by each pay period. o Evidence of receipt of these monies by the Plan's trust. For example, acceptable evidence would be trust deposit statements and canceled checks with corresponding bank statements. Note: If monies deposited include employer contributions, please indicate the amount for each period. The purpose of this is to be able to correlate deducted amounts to deposited amount. Often it is easiest to expedite the review process if a spreadsheet of the amounts is provided along with backup documents. If employee contributions to the Plan have been 30 days or more in arrears at any time since the Plan's inception, please provide a schedule or documentation of the delinquent contributions and action undertaken to correct this situation. Page 8

9 PLAN INVESTMENTS Plan Investments Section A DOL investigator would request information regarding the Plan s investments in a particular format. Plan Sponsors should use this section to organize and keep the Plan s investment information current. Summary of Plan investments with corresponding annual rates of return for each investment for the period indicated, delineated by Plan year, and separated by quarter. (Note: The Fund Recordkeeper/Custodian can usually accomplish and provide this item.) Promissory Notes and security agreements between the Plan and third parties. For all investments that are not strictly mutual funds, all supporting documents pertaining to Plan investments held or acquired (including but not limited to the following), including information pertaining to the investment decision-making process such as feasibility studies and investment advisor reports: A. Bank statements, including certificates of deposit B. Stock certificates, brokerage account transaction statements, mutual fund statements (and prospectuses) with the most recent financial report, or other indicia of ownership for Plan investments C. Insurance contracts and statements showing current values of contract D. Asset appraisals E. For all loans, other than loans secured by the vested interest of the individual Plan participants: i. Promissory note ii. Loan application, agreement (including modifications), guarantees, extensions, etc. (include all supporting documentation) iii. Loan underwriting file (including credit reports) iv. Documents evidencing the details of the loan transaction, including whether the borrower is a business or entity other than an individual, documents identifying the type of entity and its owners, officers and directors (where applicable), the borrower's relationship to the Plan or any parties in interest thereof (if applicable) v. Loan amortization and repayment schedule vi. Identification of collateral, if any, together with all applicable recorded documents (security agreements, deeds of trust, UCC-1 filings, etc.) F. For all property, including land, buildings, equipment, motor vehicles, coins, etc. held by the plan at any time: i. Description of property, including location with street address where applicable ii. Acquisition date and details of acquisition, including identity of seller and the seller's relationship to the Plan, the terms of purchase, appraisal and title policy, grand deed or other indicia of ownership, if applicable iii. Value at acquisition and current market value, including any reports, studies, analysis, or appraisals performed or obtained during the period under review relating to the value of the property or to the use (or prospective use) of the property iv. Information on debt financing, including identity of lender, amount financed, interest rate, payment terms and current balance (or date paid in full) v. An explanation of the use made of property, if any, and by whom vi. Sources and amounts of income for any income-producing property, including leases or other applicable documents evidencing the selection process for obtaining tenants vii. Documents evidencing the details of the disposition of the property, including the date, amount and terms of sale/transfer (value received, financing, etc.), fees or commissions paid in connection with the sale/transfer of property, and documents identifying the purchaser and the purchaser's relationship to the Plan or any parties in interest thereof (if applicable) Page 9

10 G. For any partnership or limited partnership investment: i. Partnership Agreement and offering circular ii. Most recent Schedule K-1 (Form 1065) and current market value iii. Most recent partnership financial statement ERISA 404(c) Compliance Section If the Plan claims 404(c) status on the Form 5500, then the following items should be kept to document the fact that the Plan satisfies 404(c) requirements: The current list of investment options available in the plan Copies of these required participant disclosures: o Description of the participant s ability to transfer assets between investment options (participants must be able to change investment options at least quarterly) o A statement of intent for the plan to be ERISA Section 404(c) compliant (may be part of the Summary Plan Description) o A statement regarding the preservation of confidentiality regarding investment and proxy voting of employer securities, if applicable o A description of the investment options that details the investment objectives and risk and return characteristics (this can be complicated if the plan offers self-directed brokerage accounts. Consult with the plan administrator if the plan offers these accounts) o Identification of any designated investment managers o Directions for participants to give investment instructions, including any limitations such as restrictions on transfers o A description of transactional fees and expenses associated with the purchase or sale of investment options o A description of transactional fees and expenses associated with the purchase or sale of investment options o Instructions for participants to obtain further information about the investment options o Copies of prospectuses o Procedures regarding the investment of employer securities, if applicable Information that must be provided to participants directly or upon request: o Information regarding fund expenses and/or manager fees o A list of the assets comprising the portfolio of each investment option o Information concerning the value of shares or units in all investment options o Information detailing the past and current investment performance of the investment options Copies of any other participant communications regarding the education of participants with respect to asset allocation decisions MISCELLANEOUS ITEMS Miscellaneous Items Section This section should be added to the ERISA Plan Document File in order to retain any other documents or communications that do not belong in the sections above. Page 10