1. A Global Reach with a Local Perspective www.decosimo.com Employee Benefit Plans Common Errors Marshall Harvey, CPA, CFE | Assurance Principal

2. Late contributions Incorrect calculation of contributions Incorrect calculation of distributions Failure to follow the plan document Noncompliance with fidelity bond requirements Noncompliance with ERISA reporting requirements Common Plan Errors 3. IRS publication entitled 401(k) Plan Fix-It Guide includes common benefit plan mistakes and how to find them, fix them and avoid them. http://www.irs.gov/pub/irs-tege/401k_mistakes.pdf IRS Guidance on Common Errors 4. Department of Labor requires plan sponsors to deposit deferrals to the plan as soon as the funds can be segregated; however, in no event later than the 15th business day of the following month. The 15th business day isnt a safe harbor! Consideration: 29 CFR 2510 includes an example of a large plan whose contributions were received by the Plan within 3 business days of the issuance of paychecks. Small plan only: DOL provides a 7 business day safe harbor rule for employee contributions to small plans (fewer than 100 participants). Timeliness of Contributions 5. Considered a prohibited transaction For large plans, reported on Form 5500, Schedule H, Part IV, line 4a, until the year after full correction Large plans require a supplemental schedule of delinquent participant contributions in audited financial statements For small plans, reported on Form 5500, Schedule I, Part II, line 4a until the year after full correction. Reconcile plan contributions to payroll records each payroll period and at year-end to identify and correct issues early Delinquent Participant Contributions 6. Consult Rev. Proc. 2013-12 to determine if the error may be corrected under either the Self Correction Program (SCP)or Voluntary Fiduciary Correction Program (VFCP). Available at: http://www.irs.gov/pub/irs-drop/rp-13-12.pdf Note that there are fees associated with correction under VFCP Correction typically includes remitting the contributions with lost earnings. A lost earnings calculator is available at: http://askebsa.dol.gov/VFCPCalculator/WebCalculator.as px Correction may also require Form 5330 to be filed with an excise tax payment Correction of Delinquent Contributions 7. 1. Failure to utilize the plan documents definition of compensation when calculating contributions. Review plan document definition of compensation Review payroll system calculation to ensure contributions are calculated properly 2. Employers failure to calculate true-up contributions, if required by the Plan. Incorrect Calculation of Contributions 8. Plan document defines plan compensation as W-2 wages; however, no employee deferral is calculated on auto allowances, or Christmas bonuses Plan document requires annual true-up contributions of employer contributions remitted each payroll period; however, employer fails to calculate these annually. Employees who max out deferrals before year-end will be underfunded. Examples of contribution issues 9. Many plans rely on third-party administrators (TPA) to calculate distribution payments. Are you providing enough information to your TPA? Accurate census information is vital to employers who utilize graduated vesting schedules Proper tracking of rehire dates may effect years of service calculation Hours worked may be necessary in determining a year of service Incorrect Calculation of Distributions 10. If allowed by your plan document, IRS regulations allow hardship distributions: because of an immediate and heavy financial need, and limited to the amount necessary to satisfy that financial need. Hardship Distributions 11. A distribution is automatically considered to be necessary to satisfy an immediate and heavy financial need if all of the following requirements are met: The distribution is not greater than the amount of the immediate and heavy financial need, including the amounts necessary to pay any taxes resulting from the distribution; The employee has obtained all other distributions and loans available under the employers plans; and The employee is not allowed to make elective deferrals to the plan for at least six months after a hardship distribution. IRS Hardship Distribution Safe Harbor 12. Review your plan document and related amendments and be familiar with key plan provisions and how they are being calculated, which may include: Definition of plan compensation Eligibility requirements Plan entry dates Vesting provisions Types of employer contributions, required or allowed Permitted types of distributions and loans Failure to follow the plan document 13. Consult Rev. Proc. 2013-12 to determine if the error may be corrected under either the Self Correction Program (SCP)or Voluntary Fiduciary Correction Program (VFCP). A copy of the revenue procedure is available at: http://www.irs.gov/pub/irs-drop/rp-13- 12.pdf Consider consulting an ERISA attorney Corrections for failure to follow plan document 14. ERISA section 412 and related regulations (29 C.F.R. 2550.412-1 and 29 C.F.R. Part 2580) generally require that every fiduciary of an employee benefit plan and every person who handles funds or other property of such a plan shall be bonded. A plan official must be bonded for at least 10% of the amount of funds he or she handles, subject to a minimum bond amount of $1,000 per plan. In most cases, the maximum bond amount required under ERISA is $500,000 per plan; however, the maximum required bond amount is $1,000,000 for plans that hold employer securities. Fidelity Bond Requirements 15. The fidelity bond required under section 412 of ERISA specifically insures a plan against losses due to fraud or dishonesty by persons who handle plan funds or other property. Fiduciary liability insurance generally insures the plan against losses caused by breaches of fiduciary responsibilities. Fidelity Bond versus Fiduciary Liability Insurance 16. Field Assistance Bulletin No. 2008-04 provides additional guidance on ERISA Fidelity Bonding Requirements and may be found at http://www.dol.gov/ebsa/regs/fab2008-4.html The plan should be the named insured Deductibles are prohibited Must cover 10% of plan assets (up to required maximum amount) Fidelity Bond Issues 17. Common reporting requirements include: Summary Plan Description Summary Annual Report Summary of Material Modifications Plan Service Provider Fee Disclosures There are many reporting and disclosure requirements with differing deadlines. The Department of Labor has a Reporting and Disclosure Guide for Employee Benefit Plans that is available on their website at http://www.dol.gov/ebsa/pdf/rdguide.pdf Plan administrators should review the reporting requirements and ensure that the plan is in compliance. ERISA Reporting Requirements 18. Marshall Harvey, CPA, CFE Assurance Principal marshallharvey@decosimo.com 800.782.8382 Got Questions?