Tip for February 2019

The Vice President of Human Resources for Conagra Brands, Inc. is a named defendant in a pending lawsuit claiming that the 401k) plan’s administrative rules were violated. If the VP is found to be responsible for such violations, restoration of any financial losses to the plan could be required from the Vice President’s personal assets.

Among the many lawsuits filed against 401(k) plan sponsors each year, they generally allege fiduciary violations involving plan investments. Failing to operate a qualified retirement plan in alignment with the written rules for the plan is a breach of fiduciary duty, too. While not yet reaching critical reporting mass in the media, the number of HR executives who are feeling the heat is expanding, according to the Internal Revenue Service (“IRS”).

Operational errors can arouse the same severe consequences as an investment program that’s infested with excessive investment-related fees. This is where human resource departments take center stage. The U.S. Department of Labor consistently reminds the HR community that violations of an ERISA plan’s operational rules can expose enterprise leaders to personal economic damages.

In the Conagra case, the complaint centers on whether the human resources department followed the plan’s definition of “compensation.” And as the list of defendants illustrates, HR managers are on the front lines. They are the parties responsible for ensuring that ERISA plans are operated according to a plan’s provisions.

The IRS is attempting to curtail operational errors among ERISA plans by publishing a list of the practices that garner the most frequent fiduciary violations. (See the list)

If you’re uncertain about how a test of your ERISA plan’s operational status would turn out, the following tips were meant for you.

Here are five tips for reducing your operational risk exposure.

  • Study the Plan Document

    ERISA qualified plans must be “established and maintained pursuant to a written instrument.” It’s called the plan document and is comprehensive in its description of the rights of the plan’s participants and beneficiaries. The plan document is a guide for the plan sponsor and its responsible managers for executing their responsibilities. It defines the benefits offered by the ERISA plan, who is eligible, how benefits are funded, who is the responsible plan fiduciary, how the plan can be amended, and the steps for delegating various duties. A plan document contains the rules by which the U.S. Department of Labor and the courts evaluate the performance of operations executives. Be sure you know the plan document’s provisions thoroughly!

  • Monitor All Activities that Support the Plan’s Benefits to Ensure Compliance with the Plan Document

    ERISA plan administration cannot be operated on “autopilot.” Third party vendors that provide administrative services may appear to offer insulation from administrative risk, but such vendors do not possess fiduciary status under ERISA. That means that the outputs generated by recordkeepers, TPAs, and payroll vendors must be cross-checked against relevant standards.

  • Be Wary of Payroll

    Payroll and contribution file submissions continue to be one of the top plan administration errors and causes of extra costs, fines, and penalties. Using a standards approach, Payroll-Protect exposes problems as soon as they occur and implements the fixes. (A CPA’s annual plan audit will focus mainly on a plan’s financial transactions and may not catch all payroll related errors or IRS Form 5500 filing deficiencies.)

  • Commission an Operations Risk Assessment*

    A risk assessment conducted periodically by a qualified consultant is a process to identify potential hazards and analyze what could happen if a hazard occurs. Simply put, a risk can’t be neutralized if its presence isn’t known.

  • Consider Installing an Automated Operations Control System

    Automating operational practices can reduce costs dramatically and remove the guesswork about complying with the plan document. New automation tools exist that expose the operational mistakes that trap many HR managers and their employers. Ask us for more details.

*Roland Criss offers demonstrations of an operational risk management system. Contact us to schedule a date on your calendar.

Payroll-Protect is a trademark of Roland|Criss.

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