United States: Top 10 Spring Cleaning Tips For Employee Benefit Plans

With laws and regulations governing employee benefit plans ever changing, those responsible for employee benefit plans should constantly check the tidiness of their procedures to ensure compliance. Below are 10 helpful tips to scrub your employee benefit plans this spring.

1 Rethink/Understand Compensation

Whether an item of compensation is included, and for what purpose, under a plan should be carefully considered. Contributions and benefits can be easily miscalculated otherwise. Common compensation errors involve the treatment of bonuses, overtime, nonqualified deferred compensation, or stock options. Align your practice with the plan's terms and ensure payroll codes are properly designated.

2 Watch for Delinquent Contributions

Employee 401(k) deferrals must be contributed to the 401(k) trust as soon as they can be reasonably segregated from the employer's general assets each payday. If you have a welfare trust, amounts withheld from paychecks for welfare benefits also must be contributed to that trust as soon as reasonably segregated. Automate your deferral contribution process to the greatest extent possible, but understand no process can be completely automated. Assign responsibility for manual aspects of the deferral contribution process to a suitable person (e.g., benefit specialist, controller, etc.), with a secondary person assigned to cover work absences.

3 Document Your Cafeteria Plans

A cafeteria plan enables participants to pay premiums, and possibly contribute to medical reimbursement, health savings, or dependent care accounts, on a pretax basis. One important, and sometimes overlooked, requirement for a cafeteria plan is the requirement of a written plan document. Without a written document, there is no cafeteria plan and additional income and employment taxes apply. Likewise, penalties for failing to properly report and withhold such taxes apply. Confirm that you have a written document that accurately reflects the pre-tax premium and contribution options offered to your employees.

4 Process 401(k) Hardship Distributions Properly

Hardship distributions are popular 401(k) plan design features (often too popular), which can create costly compliance problems if not properly administered. IRS guidance allows participants to selfcertify that a hardship event occurred if the employer receives adequate information from the participant. Review the list of IRS requirements for self-certification and remind participants that they must be able to produce documentation about the hardship event if requested by the IRS.

5 Protect Plan Data From Cybersecurity Risks

Data breaches are commonplace occurrences, even for employee benefit plans. Plans and plan service providers can hold identifying employment, financial, and health information, and a plan fiduciary has the responsibility to safeguard plan data. Plan cybersecurity policies and procedures should be vetted and certified by cybersecurity experts. Define security obligations in writing with your service providers, including security measures, rules for sharing threat information, automatic breach notifications, and mitigation protocols if a data breach occurs.

6 Analyze Your Severance Arrangements for ERIS A and Section 409A Risks

Legal requirements for severance arrangements vary depending on the nature, scope, and structure of the benefits provided. Severance arrangements requiring ongoing administration or sufficient employer discretion are subject to ERISA's requirements for a written plan document, participant disclosures, annual governmental filings, claims procedures, and fiduciary duties. Severance arrangements also may be subject to Section 409A of the Internal Revenue Code. When Section 409A applies, payments must be fixed and generally may not be accelerated or delayed without triggering significant penalties. Understand which requirements apply to your existing severance arrangements and consider the ERISA and Section 409A requirements when you implement a new severance agreement.

7 Review Eligibility Conditions

Plan eligibility errors include both failing to enroll employees who are eligible and allowing ineligible employees to participate. Maladministration can be costly. To avoid eligibility errors, know the eligibility requirements specified in your plan documents and carefully monitor each employee's employment status, age, and service.

8 Create a Prudent Process for Selecting Investments

Plan fiduciaries must make prudent investment decisions for plan assets, continuously monitor plan investments, and make adjustments when appropriate. Establish a prudent process for monitoring investments, hire experts as needed, follow that process in all circumstances, and carefully document investment decisions.

9 Assess Employment Taxes for Nonqualified Deferred Compensation Properly

A special timing rule provides that nonqualified deferred compensation is subject to employment tax upon vesting, regardless of when payment occurs. An employer's failure to apply the special timing rule properly can unnecessarily increase employment tax liability for both the employee and the employer. Review any deferred compensation arrangements and make certain employment taxes are applied when benefits vest.

10 Watch for Employer Shared Responsibility Payment (ESRP) Notices

The IRS is now sending proposed excise tax notices for the failure to offer affordable minimum essential health coverage to a sufficient number of full-time employees in 2015. These ESRP notices include a summary of the information used to calculate the proposed excise tax. If you receive an ESRP notice, verify the accuracy of the information included in the notice. If the proposed assessment is based on incorrect information, correcting the information may result in lowering, or even eliminating, the excise tax owed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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