Most employee benefit plans that are subject to ERISA are required to file Form 5500. This includes both retirement plans (including most 403(b) plans) and welfare-benefit plans, although many welfare-benefit plans covering fewer than 100 participants are exempt.

The failure to file Form 5500 can result in serious penalties. The DOL currently assesses a penalty of $300 per day, up to $30,000 per year for a failure to file Form 5500. Ouch.

But there is good news. The DOL maintains a voluntary compliance program that allows employers to correct a failure to file Form 5500 and pay a substantially reduced fee. Even in cases where there have been failures to file Form 5500 over multiple years, the maximum fee under the program is only $4,000. That's still a lot of money, but it's better than staring down something approaching a 6-digit penalty.

The program was recently updated (see here). The technical details of how the program works and what has changed will not be of interest to most of you. But it's a good time to remind ourselves the program exists - and should be used whenever possible.

The IRS has issued guidance temporarily relaxing certain requirements related to loans and hardship distributions from 401(k), 403(b), and governmental 457(b) plans, in an effort to make those funds more readily available to individuals affected by Hurricane Sandy. The new rules apply to loans and hardship distributions made between October 26, 2012 and February 1, 2013, if they are made for the purpose of assisting plan participants or their family members who live or work in a Sandy-related federally declared disaster area.

As described in an IRS news release:

“This broad-based relief means that a retirement plan can allow a Sandy victim to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. It also means that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.”

Highlights of the specific relief provided:

Plan Amendment. Plans can make qualifying loans or hardship distributions before the plan document has been formally amended to allow for loans or hardship distributions, so long as an amendment is made by the end of the first plan year beginning after December 31, 2012.
Broader Hardship Standards. Hardship distributions can be made for any Sandy-related hardship, not just the “safe harbor” hardship standards typically relied upon.
Relaxed Documentation Requirements. Documentation and procedural requirements related to hardship distributions      Continue Reading...

The IRS has released its annual cost-of-living adjustments for retirement plans for 2013. Among the highlights:

• The annual limit on elective contributions (other than catch-up contributions) to a 401(k), 403(b), or 457(b) plan has increased to $17,500.
• The annual limit on catch-up contributions (for plan participants age 50 or older) remains the same at $5,500.
• The maximum amount of annual additions that may be made to a defined contribution plan (the "415 limit") has increased to $51,000.
• The maximum amount of compensation that may be taken into account for the year (the "401(a)(17) limit") has increased to $255,000.
• The compensation threshold for identifying certain highly compensated employees remains the same at $115,000.

Separately, the Social Security Administration announced that the Social Security taxable wage base will increase to $113,700 for 2013 - up from $110,100 in 2012. In addition to affecting certain retirement-plan contributions, this impacts the amount of wages and earned income that are subject to the Social Security portion of the FICA and SECA taxes.

As the crisp fall air settles in, our thoughts turn to pumpkins, hayrack rides, apple cider - and, of course, retirement plan restatements. This year, it's Cycle B plans that must be restated and filed with the IRS for a fresh determination letter. If your EIN ends in a 2 or a 7 and you sponsor an individually designed retirement plan, you're up. The deadline to file with the IRS is still a few months away (January 31, 2013), but it's a good time to start getting everything in order, so you can beat the last-minute rush.

Not sure if you have an individually designed plan? All ESOPs and cash-balance pension plans are individually designed, and many traditional defined-benefit pension plans are too. But most plans maintained on a pre-approved "prototype" or "volume submitter" plan document are not considered individually designed and do not need to be submitted to the IRS at this time. This covers many (but not all) 401(k) and profit-sharing plans. Your retirement plan service provider or legal counsel can help you understand what type of plan you have, if you're not sure.

The August 30 deadline for initial annual disclosures under the DOL's participant-level fee-disclosure regulation is fast approaching. Employers with participant-directed 401(k) plans should be putting the final touches on their notices (or confirming that their service providers have done so) and making sure all systems are "go" for distributing them by next Thursday.

If you need a refresher, take a look at the DOL's fact sheet on the final rule, as well as our prior coverage (here).

The Department of Labor has withdrawn the controversial "Q&A-30" in Field Assistance Bulletin 2012-02, which would have required some investment-specific disclosures regarding fees and expenses in 401(k) plans that offered only a brokerage window, self-directed brokerage account, or similar arrangement and did not designate any specific investment options beyond the brokerage platform. In an amended bulletin (Field Assistance Bulletin 2012-02R), the DOL replaced Q&A-30 with a new Q&A-39 that does not require any investment-specific disclosures in brokerage-window-only plans, but does contain strong language warning plan fiduciaries that merely offering a brokerage window to participants may not be fully consistent with the general fiduciary obligations imposed by ERISA.

As brief background, the DOL's participant-level fee-disclosure regulation (which goes into effect this year) requires specific annual and quarterly disclosures to participants in most participant-directed 401(k) and other individual-account plans regarding plan-level and investment-level fees and expenses. (The initial disclosures are due by August 30, 2012, for calendar-year plans.) The investment-level information applies only to investments that are "designated investment alternatives." A brokerage window is not a designated investment alternative. So the regulation generally has been read to mean that no investment-level disclosures are required in a plan that does not have any designated investment alternatives but rather offers participants a brokerage window or self-directed brokerage account through which investments may be made in a large number of publicly available investment securities.

Q&A-30 went beyond that by nonetheless requiring investment-level disclosures in brokerage-window-only plans with respect to investment options that were either designated      Continue Reading...

The Department of Labor (DOL) has opined that a large 401(k) plan covering over 9,800 employees of 500 different employers is not a single retirement plan, but rather is a collection of separate plans established by each participating employer.

The plan was set up as a "multiple employer plan" and referred to as an "open MEP" because the employers adopting the arrangement were not related to each other by ownership, industry, or any other unifying factor. The DOL concluded this lack of "genuine organizational relationship" among the employers was fatal to the intended treatment of the plan as a single plan.

Although this opinion does not impair the tax-qualified status of open MEPs, it does mean that employers participating in open MEPs will be required to separately comply with the standards imposed under ERISA, such as the plan document, summary plan description, and Form 5500 requirements. In addition, each employer is treated as a fiduciary under ERISA and is charged with, among other things, prudently selecting and monitoring investment and service providers, including the sponsor of the open MEP and its affiliated service providers.

In light of this opinion, employers considering an open MEP should carefully evaluate the extent to which participation in the plan will, in fact, relieve it of responsibilities it otherwise has as an employer offering retirement benefits to its employees.