Posts by Paul McEwan, CPA, MT, AIFA, Director of Benefit Plan Services:
If your company offers a retirement plan to its employees, make sure you are familiar with the Employee Retirement Income Security Act’s (ERISA) fidelity bonding requirements and the information you must include on your plan’s annual Form 5500.
Over the years we have noticed that many clients struggle with obtaining and keeping an active and accurate ERISA fidelity bond because of a general lack of understanding. The purpose of the fidelity bond is to protect your plan’s assets from the risk of loss due to fraud or dishonesty by employees handling the plan’s funds, such as when remitting plan contributions.
The required bonding amount is “10 percent of plan assets handled.” Because this is a difficult number to know with certainty, most plan trustee’s make sure the plan is bonded for at least 10 percent of all plan assets. This means that as your plan’s assets grow, so does your required bonding amount. There are two primary exceptions to this rule:
- The maximum required amount is $500,000 – regardless of your plan assets.
- If your plan has more than 5 percent non-qualifying plan assets, then a bond is needed to cover the amount of non-qualifying plan assets.
- “Non-qualifying plan assets” includes anything that is not a marketable security held by a bank, trust company, registered broker-dealer or insurance company.
- If a bond in the correct amount is not established, then an independent plan audit by a certified public accountant is required. These audits cost about $10,000 annually.
Even if your plan only contains qualifying plan assets, not maintaining a fidelity bond in the proper amount can be a red flag to the Department of Labor, which could prompt them to take a closer look at your plan.
NOTE: A fidelity bond is different than fiduciary insurance. Fiduciary insurance is not required, but should be in place to protect your plan fiduciaries from personal risk of loss. Your plan fiduciaries include any employee who serves as a plan trustee or who is on a plan investment committee tasked with ensuring that your plan is free from errors or omissions that could result in loss to your plan. Plan fiduciaries are personally liable for these potential losses, so having fiduciary insurance coverage is prudent (albeit not required).
To learn more about the ERISA fidelity bond requirements, email Rea & Associates.
By Paul McEwan, CPA, MT, AIFA (New Philadelphia office)
As you work to secure your retirement, you may be pleased to find out about changes to several retirement-related items that may allow you to put a little more cash away in 2015. In October, the IRS announced several adjustments to the limitations previously set on retirement planning tools as a result of an increased cost-of-living. So what does that mean to you and your retirement plan(s) of choice? Take a look:
- If you contribute to a 401(k), 403(b), 457 plan or a Thrift Savings Plan, the following changes could impact how you contribute:
- You can now invest up to $18,000 annually – this is an increase up from $17,500.
- If you’re 50 years old or older and are trying to catch-up on your retirement savings, you may now invest $6,000 annually. The previous catch-up contribution limit was $5,500.
- If you contribute to an individual retirement account (IRA), you will see the following changes in 2015:
- The annual limit and additional catch-up contribution limit for an IRA for individuals 50 years old and older will not change in 2015. The annual contribution is $5,500 and the catch-up contribution is $1,000.
- Single filers and heads of household who are covered by a workplace retirement plan and have adjusted gross incomes (AGI) between $61,000 and $71,000 will no longer be eligible to receive a deduction for contributing to their traditional IRA. This has increased from $60,000 and $70,000 in 2014.
- Married couples who file jointly, where one spouse makes an IRA contribution that is covered by a workplace retirement plan, will see an increased income phase-out range for taking the deduction as well. The new range is $98,000-$118,000 – up from $96,000-$116,000.
- If you’re an IRA contributor, not covered by a workplace retirement plan, but are married to someone who is covered, the deduction is phased out if you and your spouse’s income falls between $183,000 and $193,000 – up from $181,000 and $191,000.
- The phase-out range for a married taxpayer who files a separate return and who is covered by a workplace retirement plan will not change in 2015. The range remains $0 to $10,000.
- If you make contributions to a Roth IRA, you will see the following changes:
- The phase-out range for married couples filing jointly is $183,000 to $193,000 – an increase from $181,000 to $191,000.
- The phase-out range for single filers and heads of household is $116,000 to $131,000 – an increase from $114,000 to $129,000.
- The phase-out range for a married individual who files a separate return is unchanged.
As we approach the end of the year, there’s not a better time to evaluate your current retirement plan situation and determine if you need to make any changes for 2015. To learn more about how these retirement plan changes could impact your financial situation, email Rea & Associates.
By Paul McEwan, CPA, MT, AIFA (New Philadelphia office)
You may find that the spotlight isn’t for you. But as the fiduciary of your company’s retirement plan, the spotlight is all on you. The Department of Labor (DOL) has placed a major emphasis on fiduciary responsibility in the past few years and continues to push the matter in its initiatives. So it’s important that you understand what you’re responsible for.
To meet your fiduciary responsibilities as a retirement plan sponsor, you need to understand the fiduciary standards of conduct as adopted by the Employee Retirement Income Security Act (ERISA). With these fiduciary responsibilities, there is also potential liability. Fiduciaries that don’t follow the basic standards of conduct may be personally liable to restore any losses to the plan. Pretty serious, right? To help ease your mind, here’s what you need to know.
Identifying Your Plan Fiduciaries
A plan’s fiduciaries will ordinarily include the named trustee in the document, investment advisors and all individuals exercising discretion in the administration of the plan. Under ERISA regulations, fiduciaries are responsible for:
- Loyalty to the plan participants – acting in their exclusive best interest
- Prudence – documenting expertise and a decision-making process
- Following the plan documents
- Diversifying plan assets
- Paying only reasonable expenses for necessary services
Mitigating Your Risk As A Fiduciary
As a fiduciary of your business’s retirement plan, you should consider these items and answer these questions to ensure that you comply with ERISA regulations:
- If participants in your plan make their own investment decisions, have you provided sufficient information for them to exercise control in making those decisions? Regulations under ERISA list the information and process required to be provided to participants in order to legally shift the responsibility for making investment decisions to the participants. Are you making the required participant fee and fund performance disclosures required annually by ERISA of all plans permitting participant investment direction?
- How frequently do you deposit participants’ contributions in the plan, and have you made sure it complies with the law? Participant contributions, including loan repayments, are required to be remitted on a timely, consistent basis. Not remitting these funds in a timely manner is considered a misuse of plan assets, which is a prohibited transaction. Not meeting this requirement creates penalties for the plan sponsor.
- If you’re hiring third-party service providers, including investment advisors, have you looked at several providers, given each potential provider the same information, and considered whether the fees are reasonable for the services provided? It’s required that you receive fee and service disclosures from all plan service providers, and you should also receive written acknowledgements from service providers serving in a fiduciary capacity. Here are some other items to consider relating to third-party service providers:
1. Have you documented your service provider hiring process?
2. Are you prepared to monitor your plan’s service providers, including investment fund performance?
3. Do you have a process in place to determine that the fees paid to service providers remain reasonable for the services provided?
- Have you reviewed your plan document in light of current plan operations and made necessary updates? Have you provided participants with an updated summary plan description (SPD) or summary of material modifications (SMM)? Plans are required to operate according to the provisions stated in the plan document and these provisions must be communicated to participants. Changes are generally permitted, but again are required to be communicated to participants. If the plan is not operating in accordance with the written plan document, the plan could be disqualified, which would result in negative tax implications for you, the plan sponsor, and the participants.
- Are individuals handling plan assets covered by a fidelity bond as required by ERISA? Have you considered purchasing fiduciary insurance to mitigate the personal risk of loss to those employees you identified that are serving as plan fiduciaries? While a fidelity bond and fiduciary insurance are slightly different, both are a form of coverage to provide protection in regards to plans. The bond insures the assets of the plan in the event of employee misconduct and the fiduciary insurance provides personal protection to fiduciaries in the event of any claims for alleged errors, omissions, or breach of fiduciary duties.
Being a plan fiduciary comes with enormous responsibility. Don’t take your fiduciary responsibilities lightly. If you’re interested in learning more about what you’re responsible for as a retirement plan fiduciary, consider registering for a FREE seminar all about knowing your fiduciary responsibility. Rea & Associates has partnered with the Human Resources Association of Central Ohio (HRACO) to provide an all-day seminar dedicated to helping fiduciaries understand their responsibilities. The seminar will feature speakers from the Internal Revenue Service (IRS) and the DOL. It will be held on Tuesday, August 26 from 8:30 a.m. to 4:30 p.m. at BMI Federal Credit Union Event Center in Dublin, Ohio. More details, including a schedule, can be found here. Click here to register for this free event.
Fiduciary Responsibility Help
Author: Paul McEwan, CPA, MT, AIFA (New Philadelphia office)
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