More Risk & Responsibility for Fiduciaries of Employee Benefit Plans
Recent changes in the Department of Labor (DOL) and Internal Revenue Code regulations have created significant discussion regarding the required disclosure of fees for employee benefit plan tax reporting purposes. What have not received equal publicity are the anticipated increases in plan trustee and administrator responsibility and risk.
What are these increases?
Plan fiduciaries, including trustees or administrators, are required to assess the reasonableness of service organization agreements, whether or not 5500 disclosure of fees is required. The assessment includes considering the services to be provided to the plan, the reasonableness of amounts being paid for the services, as well as potential conflicts of interest that may affect the quality of the services provided.
That means to comply with ERISA, trustees and administrators will be required to obtain sufficient information from service organizations to perform these assessments. The regulations also provide a restrictive time-frame within which service organizations are required to produce this information.
These changes are effective July 16, 2011, for all existing and future service arrangements.
Non-compliance identified by an Internal Revenue Service, Employee Retirement Income Security Act (ERISA) or DOL audit would result in both service providers and plan fiduciaries being subject to ERISA’s prohibited transaction rules and excise taxes.
Plan auditors will be considering the new regulation requirements for plan years ending subsequent to July 16, 2011.