3. Plan Documentation Reqs Flashcards
Does the plan documentation requirement of ERISA apply to both welfare BP and pension BP?
Both welfare and pension BPs are subject to a plan doc req, as well as reporting & disclosure reqs of Title 1 of ERISA, and the IRC.
List the 5 main ERISA reporting & disclosure reqs
- Written plan document
- SPD
- SMM
- Form 5500 (annual financial report)
- SAR
Qualified pension BPs are subject to additional disclosure & reporting reqs.
Describe the ERISA-required “written plan document” and its purpose
All plans subject to ERISA must be established and maintained pursuant to a written plan document that describes the benefits provided under the plan, names the individual(s) responsible for the operation of the plan, and outlines the arrangements for funding and amending the plan. The purpose of the plan doc is to set forth the rules and reqs governing the plan. The plan fiduciary is obligated to follow the T&C of the plan, as long as the plan is compliant with the law.
ERISA doesn’t specifically define what should be included in a plan doc.
List the elements that would be prudent to include in a plan document
- Name(s) of the plan fiduciary(ies)
- Policies & procedures relating to plan admin
- Funding reqs
- A description of how benefit payments will be made
- Claims & appeals procedures
- Plan amendment and term authority & procedures
- Method for distribution of plan assets upon plan termination
- A statement that plan assets can be used to pay reasonable costs of plan administration
Guidance provided by the IRS affirms that a legally married same-sex spouse must be treated as a spouse for all “qualified pension and retirement benefit plan purposes.” List some of these purposes.
- As a named beneficiary, unless the spouse consents to another beneficiary
- If a retirement plan provides a qualified joint and survivor annuity or a qualified pre-retirement survivor annuity, the same-sex spouse would be entitled to these benefits.
- In regard to minimum distribution and overall rules
- In regard to withdrawals, loans, and hardship distributions
- In regard to alternative payee rights for distributions under a qualified domestic relations order
- In regard to family attribution and other ownership rules applicable to retirement plans
What is a SPD? When must it be given to participants?
SPD contains a summary of the provisions of the plan, including: eligibility, benefits, plan operations, funding, claims procedures, a statement of ERISA rights.
Initial SPD must be distributed to participants & beneficiaries within 120 days of date lab becomes subject to disclosure reqs. Subsequent to the initial distrib, an SPD reflecting plan changes must be distributed every 5 years (10y, if no changes are made to the plan, which is unlikely). The SPD must be distributed by the *210th day following the close of the relevant PY to which the SPD applies, unless there is a material reduction in benefits.
New participants must be provided an SPD within 90d of becoming participants in the plan.
What is Windsor?
The United States Supreme Court’s historical ruling in United States v. Windsor that Section 3 of the Defense of Marriage Act (DOMA) is unconstitutional under the Fifth Amendment of the United States Constitution.
By invalidating Section 3’s restriction on federal government recognition of same-sex marriage, Windsor returns the determination of spousal status to the states and ensures equal treatment for state-law-recognized same-sex spouses with respect to employee benefits matters, including pension survivor benefits, qualified domestic relations orders, the tax treatment of health and welfare benefits, plan rollovers and more.
Identify the plan docs that, according to best practices, should be in place at a minimum for the management of plan investments.
- SPD
- Investment committee charter
- Investment policy statement (IPS)
Briefly describe the SPD for a retirement plan
SPD outlines key features of the ret plan. It fulfills the legal reqs and provides participants with an understanding of basic provisions.
It outlines the rules by which the plan is governed and covers topics: ER contributions and cheating, eligibility, plan loans/withdrawals, distributions, contact info for questions.
Should be written in language participants can easily understand.
Describe the investment committee charter
An important component of plan governance; doesn’t need to be elaborate and should outline fundamentals, providing committee members with the scope and range of authority to empower them to manage plan and fulfill fiduciary responsibilities. Charter should:
1. Specify activities for which the committee is responsible, such as coordinating vendor analysis, recommending plan design features
2. Define the governing bodies with whom the committee must consult and to whom they need to provide recommendations
3. Define how committee members are selected/appointed
4. Establish how often regular committee meetings should occur
5. Define roles of any outside consultants
Describe the IPS (Investment policy statement)
The IPS is the foundation for how the retirement plan investment program is expected to operate. IPS should provide guidelines for selecting, monitoring, measuring ,and making decisions for the plans investments. IPS should:
1. Define the plan & its purpose
2. Describe responsibilities for those involved with the investment program
3. Establish the investment menu structure
4. Assign investment performance benchmarks & develop performance measurement standards & processes
5. Determine criteria for selecting/terminating investment managers
6. Document the investment decision-making process
List the components that should be included in a well-constructed IPS (investment policy statement)
- Statement of purpose
- Statement of roles & responsibilities
- Asset allocation
- Investment goals & objectives
- Investment guidelines
- Investment performance review & evaluation
How many members should comprise an investment committee?
There’s no perfect number, but 5-7 members seems to meet objectives, while >10 is too unwieldy. Having an odd number prevents votes from being tied up.
Large committees begin to lose their effectiveness and ability to make decisions efficiently; can end up paralyzed & unable to reach consensus.
Smaller group that has enough diversity to engender meaningful discussion and healthy debate is optimal.
Who should comprise an investment committee?
Should include a rep from senior management (either CFO or COO), and anyone who serves as a fiduciary to the plan. An org’s legal counsel should either be on the committee or sit in as an advisor. Although they’re not usually voting members, reps from plan providers such as the trustee, investment consultant, and record keeper should attend too.
The committee must represent participants, so include members from different disciplines/areas of the org, such as HR and finance. A diverse mixture beyond managers creates a more representative group.
Membership should be voluntary.
Most committees elect at least a chairperson & secretary; other elected positions depend on needs.
Establishing a term of service helps keep committee fresh and having new members periodically adds new perspectives & flexibility. The experience & knowledge of long-term members is also valuable, so find balance by rotating some positions and retaining others for longer periods.
Educating investment committee members is critical to long-term success of this governing body. Education can be broken down into three segments; what are they?
- Understanding fiduciary responsibility
- Education about functioning as a committee
- Investment education