RPA2 Module 9 Flashcards
Recognizing that the scope and function of employee benefits administration differ within various organizations, list the core activities that are inherent in employee benefits management generally.
(a) Benefits plan design
(b) Benefits plan delivery
(c) Benefits policy formulation
(d) Communications
(e) Applying technology
(f) Cost management and resource controls
(g) Management reporting
(h) Legal and regulatory compliance
(i) Monitoring the external environment.
What part does plan complexity play in making communication of employee benefits a challenge for plan sponsors?
Increased investment choices with participant-directed accounts, multiple program choices in flexible benefits programs, corporate mergers, and continuing market, technology and legal changes contribute to the complexity
Describe the dual standards a plan sponsor must be concerned with regarding employee benefits communications.
The maximum standards are those the company sets for creating a proper understanding and use of the plans, and the minimum standard is specified by the Employee Retirement Income Security Act (ERISA) for meeting the legal compliance requirements for disclosure to plan participants and beneficiaries.
Explain the parallels between the tax law provisions within the Internal Revenue Code (IRC) and the labor law provisions within ERISA, as well as the two key labor law areas that have no corresponding sections within IRC.
The labor law provisions of ERISA contained in Title I of the act include many provisions that are virtually identical to the tax law provisions passed at the same time.
Title I has minimum participation, funding and vesting requirements, as well as joint and survivor protection for the spouses of employees.
For the most part, however, jurisdiction and administration of these provisions have been assigned to the Internal Revenue Service (IRS) under the tax provisions—a notable exception being that the Department of Labor (DOL) was given jurisdiction over the determination of service for eligibility, vesting and benefit accrual.
Title I, however, contains important provisions concerning two key areas:
(1) reporting and disclosure and
(2) fiduciary responsibilities.
Except for some restrictions on prohibited transactions, there is no counterpart for these provisions in the tax law.
Describe the scope of Title I of ERISA in terms of which types of plans must fulfill its requirements for the disclosure of information and which types of plans are exempt from these requirements.
A major aspect of Title I concerns the disclosure of information to participants and their beneficiaries and to the government. These requirements generally apply to most tax-qualified plans regardless of the number of participants involved.
There are, however, a limited number of exemptions. They do not, for example, apply to unfunded excess benefit plans, which are maintained to provide employees with benefits they would otherwise have received but that were not provided under the qualified plan because of Section 415 limitations.
It should be noted that this exemption is limited in scope and does not, for example, apply to so-called excess benefit plans that restore benefits lost because of the maximum limit on pay that can be taken into account when calculating plan benefits or contributions. Also, if an unfunded plan is maintained for the exclusive benefit of a “select group of management or highly compensated employees,” the only disclosure requirement is that DOL be notified of the existence of the plan and the number of employees that it
covers.
Briefly describe the following disclosure documents required under Title I of ERISA.
(a) Summary plan description (SPD): The SPD is the booklet, folder or binder that describes the plan and is given to employees.
(b) Summary of material modification (SMM): The SMM is a summary of any
plan amendment or change in information that is required to be included in the SPD after the initial SPD has been issued.
(c) Summary annual report (SAR): The SAR is a summary of the plan’s annual
financial report.
(d) Benefits statements: The benefits statement is a personalized statement that must be provided to a participant either upon request or at specific intervals for various types of retirement plans.
1 Explain how PPA modified filing requirements in connection with a plan’s annual financial report to make this information more accessible to parties interested in this information.
PPA modified filing requirements in connection with the plan’s annual financial
report (filed using Form 5500) to make this information more accessible and readily available to parties interested in this information. PPA requires that certain annual report information be filed in an electronic format for Internet display by DOL.
DOL must post the information to the Internet website within 90 days of the filing. This information must also be displayed on any employee intranet website maintained by the plan sponsor.
Although PPA did not change the requirement to supply a benefit statement upon request to a plan participant within any 12-month period, how did it expand the need to supply such statements and with what frequency for various types of retirement plans?
PPA modified the requirements for benefit statements, expanding the need for issuance beyond the need to fulfill a plan member’s request in any 12-month period beginning after December 31, 2006.
Under PPA rules:
(a) If a participant in a defined contribution plan is entitled to direct plan
investments, he or she must receive a benefit statement once per quarter.
(b) If a participant in a defined contribution plan is not entitled to direct plan
investments, he or she must receive a benefit statement once per year.
(c) For an active, vested participant in a defined benefit plan, the plan sponsor must provide either (1) a benefit statement once every three years or (2) an annual notice describing the availability of a benefit statement and the manner in which the participant can obtain a benefit statement.
In addition to the aforementioned benefit statement that must be supplied upon request, list other items that must be given to employees upon request and/or made available for examination.
(a) Supporting plan documents
(b) The complete application made to IRS for determination of the plan’s tax-qualified status
(c) A complete copy of the plan’s annual financial report
(d) A plan termination report (IRS Form 5310) should the plan be terminated.
The locations at which documents must be made available include any distinct physical location where business is performed and in which at least 50 participants work. Plan materials need not be kept at each location as long as they can be provided there within ten working days after a request for disclosure. The employer may charge for reproduction of all materials requested unless the material falls in a category where it must be automatically furnished. Any item automatically distributed by mail must be sent by a class of mail that ensures timely delivery.
Describe the time intervals within which SPDs must be distributed to employees and beneficiaries, the time intervals within which SPDs must be updated and the overall need for the SPD to be in permanent form and current.
The SPD must be given to new employees within 90 days after they become participants and to beneficiaries within 90 days after they start receiving benefits.
For new plans, the initial SPD must be given to participants within 120 days after establishment of the plan. New, complete SPDs must be filed and distributed at least every ten years. If there have been material changes since the last SPD was issued, however, the employer must file and distribute a new SPD every five years.
The SPD must be in permanent form and must be current regarding all aspects of the plan and the information required by Title I of ERISA.
What requirements does ERISA mandate in terms of the writing style of the SPD, and what requirements are imposed if significant numbers of an employer’s workforce are literate only in a language other than English?
All of the information in the SPD must be “written in a manner calculated to be understood by the average plan participant” and should be “sufficiently accurate and comprehensive” to inform employees and beneficiaries of their rights and obligations under the plan.
The explanations provided by legal plan texts and insurance contracts ordinarily do not meet these standards. DOL regulations recommend the
use of simple sentences, clarifying examples, clear and liberal cross references, and a table of contents in the SPD. The use of type is important; varying sizes and styles of type may not be used when they may mislead employees.
If a plan covers 500 or more people who are literate only in a language other than English, or if 10% or more of the participants working at a “distinct physical place of business” are literate only in a non-English language (25% or more where the plan covers fewer than 100 participants), the SPD must include a prominent notice in the familiar language offering assistance—which may be oral—in understanding the plan.
Discuss the intent of a plan’s annual financial report and how this intent influences the information disclosed. Additionally, comment on the necessity to engage the services of an independent qualified public accountant.
The annual report is designed to require a complete disclosure of all financial information relevant to the operation of the plan. Thus, for example, it includes items such as a statement of assets and liabilities presented by category and valued at current market prices, changes in assets and liabilities during the year, and a statement of receipts and disbursements.
It requests details, where applicable, for transactions with parties in interest, loans and leases in default or uncollectible, and certain reportable transactions (e.g., transactions involving in excess of 3% of the current value of plan assets). The report also requires information on plan changes made during the reporting period and on employees included or excluded from participation.
Certain financial statements in the report have to be certified by an independent qualified public accountant. Insurance companies and banks are required, within 120 days after the end of the plan year, to furnish any information necessary for the plan administrator to complete the annual report. Plans that are fully insured are granted limited exemptions. These plans do not have to complete the financial information sections of the form, nor need they engage an accountant for audit or include an accountant’s opinion. Plans with fewer than 100 participants have less complex filing requirements for their Form 5500.
What is contained in a plan document, and do participants and beneficiaries have access to this document?
Plan documents include the text of the actual plan itself and any collective bargaining agreement, trust agreement, contract or other document under which the plan is established or operated. Plan participants and beneficiaries are entitled to receive copies of these documents within 30 days of making a written request. DOL may request copies of these documents at any time.
Describe the changes made by PPA in terms of the content requirements for the personal benefits statement for retirement plans.
Traditionally, plan participants and beneficiaries could request in writing a statement of their own benefits, but not more often than once in any 12-month period. The statement would include the total benefits accrued and the portion, if any, that was vested or, if benefits were not vested, the earliest date on which they would become vested. While still retaining the right to request a benefit statement within any 12-month period, PPA expanded issuance requirements.
Additionally, PPA added a number of substantive requirements for the
content of personal benefit statements. If a participant can direct plan investments, the benefit statement must provide the following:
(a) Information explaining any restrictions on the right to direct investments
(b) An explanation on the importance of diversifying investments
(c) A statement cautioning participants on the risk of holding more than 20% of a portfolio in the securities of any single entity, such as employer securities For a defined benefit plan, the benefit statement must include:
(a) An explanation of any permitted disparity under Section 401(l) or of a flooroffset arrangement.
Describe the DOL regulations around fee disclosure for plan sponsors/fiduciaries and plan participants.
Beginning in 2012, covered service providers and plan fiduciaries need to disclose retirement plan fees so that plan participants can more easily understand the costs related to plan investments that they select under their retirement plan options.
There are two sets of regulations related to fees. The first regulations require those providing services to pension, profit-sharing, 401(k) and 403(b) plans subject to ERISA to disclose in a written form the services they provide and the total compensation they receive either directly from the plan/plan sponsor or indirectly from a source other than the plan/plan sponsor.
The second regulations are those that mandate disclosure from plan sponsors to plan participants or beneficiaries. The two categories of information that plan sponsors must provide are:
(1) Plan-related information, including general plan information, administrative expense information and individual expense information
(2) Investment-related information, including performance data, benchmarking information, fee and expense information, Internet access to investment-related information and a glossary to assist participants with investment-related terminology.
