3. Plan Documentation Reqs

Question 1

Does the plan documentation requirement of ERISA apply to both welfare BP and pension BP?

Answer 1

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.

Question 2

List the 5 main ERISA reporting & disclosure reqs

Answer 2

1. Written plan document
2. SPD
3. SMM
4. Form 5500 (annual financial report)
5. SAR

Qualified pension BPs are subject to additional disclosure & reporting reqs.

Question 3

Describe the ERISA-required “written plan document” and its purpose

Answer 3

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.

Question 4

List the elements that would be prudent to include in a plan document

Answer 4

1. Name(s) of the plan fiduciary(ies)
2. Policies & procedures relating to plan admin
3. Funding reqs
4. A description of how benefit payments will be made
5. Claims & appeals procedures
6. Plan amendment and term authority & procedures
7. Method for distribution of plan assets upon plan termination
8. A statement that plan assets can be used to pay reasonable costs of plan administration

Question 5

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.

Answer 5

1. As a named beneficiary, unless the spouse consents to another beneficiary
2. 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.
3. In regard to minimum distribution and overall rules
4. In regard to withdrawals, loans, and hardship distributions
5. In regard to alternative payee rights for distributions under a qualified domestic relations order
6. In regard to family attribution and other ownership rules applicable to retirement plans

Question 6

What is a SPD? When must it be given to participants?

Answer 6

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.

Question 7

What is Windsor?

Answer 7

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.

Question 8

Identify the plan docs that, according to best practices, should be in place at a minimum for the management of plan investments.

Answer 8

1. SPD
2. Investment committee charter
3. Investment policy statement (IPS)

Question 9

Briefly describe the SPD for a retirement plan

Answer 9

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.

Question 10

Describe the investment committee charter

Answer 10

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

Question 11

Describe the IPS (Investment policy statement)

Answer 11

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

Question 12

List the components that should be included in a well-constructed IPS (investment policy statement)

Answer 12

1. Statement of purpose
2. Statement of roles & responsibilities
3. Asset allocation
4. Investment goals & objectives
5. Investment guidelines
6. Investment performance review & evaluation

Question 13

How many members should comprise an investment committee?

Answer 13

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.

Question 14

Who should comprise an investment committee?

Answer 14

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.

Question 15

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?

Answer 15

1. Understanding fiduciary responsibility
2. Education about functioning as a committee
3. Investment education

Question 16

Educating investment committee members is critical to long-term success of this governing body. Education can be broken down into three segments; the first of which is fiduciary responsibility. Define this

Answer 16

Committee members should be aware of what their fiduciary responsibilities are, and what liability they have.

Question 17

Educating investment committee members is critical to long-term success of this governing body. Education can be broken down into three segments; the second of which is education about functioning as a committee. Define this

Answer 17

Knowledge of techniques for inviting participation and encouraging different POV, as well as avoiding common group pitfalls, can help a committee make better decisions as a group

Question 18

Educating investment committee members is critical to long-term success of this governing body. Education can be broken down into three segments; the last of which is investment education. Define this

Answer 18

Committee members are likely to have varying degrees of investment knowledge and sophistication. Bc they’ll be ultimately responsible for making investment decisions on the plan’s behalf, committee members should have a fundamental understanding of investment concepts.

Question 19

How often should an investment committee meet?

Answer 19

Minimum - annual

Generally, quarterly or twice per year is best practice

Question 20

What topics should be covered in investment committee meetings?

Answer 20

1. Follow-up on discussion from previous meetings
2. Review of investment performance and investment options
3. Review of legislative/regulatory updates: has anything changed that affects the plan
4. Review of vendor services and fees
5. Review of the IPS (investment policy statement): is it still in line with the needs of the overall investment program?
6. Discussion of any potential plan improvements

Question 21

How often should a record keeper request for proposal (RFP) be issued by retirement plan sponsors/committees?

Answer 21

Not mandate by regulations.

Best practice - 3-5 years

Question 22

What is a less demanding alternative to an RFP for investment committee members?

Answer 22

RFI (information) process may be somewhat less demanding than a full RFP, while still providing some of the benefits, such as comparing costs and services with other providers.

Question 23

Explain how the purpose of EB plan comms has changed recently

Answer 23

In the past, benefit comms were very basic: ER’s main comm objective was keeping booklet updated, ensure claim forms are available, issue occasional memo/newsletter summarizing updates/improvements to bens.

No longer is benefit comms merely concerned with providing EE with info re plans over which they have little/no influence. Instead, ER must change objective to focus on motivating EE to make decisions about how best to utilize their bens in a way that is economical to both plan sponsor & EEs’ families.

Question 24

Describe the basic ways in which EBP communications have changed

Answer 24

Becoming increasingly complex & regulated, and are now more expensive. More closely tied to an org’s overall biz strategy.

Benefits can play a major role in an org’s ability to attract/retain diverse workforce necessary to compete in changing business marketplace. Benefits also affect org’s bottom line. Comms is essential for bens to support org goals. These must be recognized, appreciated, and understood by EEs, to further the goals.

Question 25

What factors influence the shape & scope of an org’s Ben comms program?

Answer 25

Factors can be summarized as *the need to: 1. Highlight the value of EBs 2. Create involvement & ownership with EE 3. Encourage better utilization of bens 4. Support, facilitate Ben admin 5. Satisfy legal reqs

Question 26

What is a total compensation statement and what is its purpose?

Answer 26

ER can increase their ROI on benefits by making EE aware of the cost of their bens and effect of the cost on the company. A total comp statement adds the computed cost of benefits to pay to reveal the EE’s actual total comp. Good communication can increase EE appreciation of the value of their benefits and create a positive attitude toward the co.

Question 27

Explain the (5 significant) differences bt a market-driven approach to EBP comms and the trad’l approach to such comms

Answer 27

1. In the market-driven approach, objectives are specific, not general as they are in trad’l 2. IN the trad’l approach, the focus is on informing/explaining bens; in market-riven, focus is on affecting/changing attitudes/behaviors 3. Success is often hard to measure in the trad’l approach, while it is directly measurable in the market-driven approach 4. IN the trad’l approach, messages are sent to a single mass audience, but messages are targeted to specific audiences in the market-driven approach 5. The comm tone is neutral in the trad’l approach; in market-driven, it is direct.

Question 28

Describe 5 basic steps in moving to a market-driven approach to an EBP comms system

Answer 28

1. Research audience: who they are, how they currently feel, what they want to hear, what will motivate them/change their attitudes, how/when to reach them 2. Set goals based on anticipated results of a comm. Consider the knowledge needed or actions taken by EE as a result of the comm. Goals should be measurable, such as a stated % of EE participation in a managed-care med plan 3. Plan the messages & media so they are targeted to appropriate market segments. Previously print/phone/promotions. Now, meet the target audience where it sits - somewhere on its smartphone 4. Implement the comm campaign, which was developed based on the research step. ER can test-market the comm along the way to ensure messages reach targets. E.g., by soliciting feedback from a sample of EEs prior to wide scale distribution of the comm. 5. Test and measure the results of the comm.

Question 29

List the (5) reasons the IRS gave for urging plan sponsors to establish a strong internal control environment

Answer 29

1. Good internal controls can eliminate/reduce errors in the operation of a plan 2. They can help a plan sponsor quickly identify errors and initiate its own corrections without relying on regulators to catch mistakes, reducing the cost of corrections 3. Good controls help keep an audit of the plan focused, reducing the time dedicated to conducting an examination 4. They can shorten the turnaround time on any requests for additional info 5. They generally promote clear comm bt examiners and plan reps

Question 30

What do the DOL and IRS expect auditors to do, regarding internal controls?

Answer 30

To take a close look at internal controls as part of their routine audit procedures. It is an aspect of EB audits that seems “widely misunderstood, or even widely unknown,” says DOL on its website. “Auditors do not merely reconcile financial statements. In addition to their many other audit tasks, auditors review internal controls to determine whether they provide adequate safeguards for plan participants.”

Question 31

Who is responsible for establishing and maintaining an effective system of internal controls over EB plans? Controls generally fall into which specific areas?

Answer 31

Plan sponsor & plan admin are responsible for establishing & maintaining system. Controls fall into these areas: 1. Plan doc & amendments 2. Plan testing & admin, also contribs, participant data, comp, distributions, loans, plan expenses 3. Controls at any third-party admin 4. Controls might also be necessary to address multiple plans, multiple subsidiaries/biz units, or merging plans in the event of a business combination 5. Defined benefit pension plans also have ++ controls to address actuarial assumptions and the proper distribution of funds

Question 32

Describe the problem commonly encountered by auditors in EBP audits, with the allocation of funds to EE accounts

Answer 32

EE contribs to plans are often administer by payroll deductions. Auditors sometimes find that while contrib amounts are deducted from payroll according to a sound method, funds aren’t always remitted timely to the EBP. For plans with >100 participants, funds must be remitted as soon as they reasonably can be segregated, but not more than 15d into the moth following the month in which they’re withheld from payroll. Timing on this transaction is critical, but it isn’t uncommon to find that admins aren’t following a sound process for its ensurance.

Question 33

Name 5 areas that have been identified as especially in need of internal controls

Answer 33

1. Distributions and loans 2. Hardship withdrawals 3. Non discrimination testing 4. Contributions 5. Compensation & personal data

Question 34

What is a SOC 1 Report?

Answer 34

It’s difficult to review and assess controls at an outside service org, which is why 3rd party admins should provide plan sponsors with an audit report of their own, commonly called a SOC 1 Report, or more formally, a “Report on Controls at a Service Organization Relevant to User Entities’ Internal Control Over Financial Reporting.” A SOC 1 Report is prepared by an auditor engaged by the TPA to review and assess controls at that service org, and the service org provides the report to any entity relying on its controls. This is a more efficient means of showing that controls are in place and operating effectively, than having the service org consent to audit reqs from each of its individual clients.

Question 35

How has IRS helped orgs with their internal control obligations?

Answer 35

IRS has taken note of where it most often sees control problems with EBPs, and it provides checklists to help companies keep their plans in compliance. IRS also provides tools on its website that can be helpful to companies reviewing their controls or establishing controls in a more formal way.