401k News: Dept of Labor and IRS Update Q2 2015

DOL Update

Participant Fee Disclosure Deadline Extended
During second quarter, the DOL released final regulations to permanently extend the annual
participant fee disclosure time frame, effective this year.

The original regulations require plans to provide a disclosure of plan and investment information, including an investment comparative chart, to participants once every 12 months. The first disclosures were due by August 30, 2012, and each annual disclosure thereafter would be due within 12 months of the last delivery date. Despite the timing relief available for plan sponsors to use either in 2013 or 2014, the DOL wanted to address concerns that the fee disclosure timing still does not align with the delivery dates of other participant notices such as safe harbor 401(k) notices or automatic enrollment notices, which are due within 90 days before the start of each plan year.

In March, the DOL published regulations that modify the participant fee disclosure annual timing requirements. These regulations permanently allow an additional 2-month window for plan sponsors to deliver the annual fee disclosures. The term “annually” is now defined as “at least once in any 14-month period” instead of once every 12 months. This change is effective June 17, 2015. However, plan sponsors may apply the new 14-month definition before June if they determine it would be beneficial to their plan participants. This 14-month window will enable fee disclosures to be delivered on the same schedule as certain other participant notices.

401k IRS Update

Updated Plan Corrections for Employee Deferral Errors
The IRS is well aware that mistakes happen when operating a retirement plan. That’s why the IRS has designed a plan corrections system that lets plan sponsors bring their plan back into compliance without losing its tax benefits. This system is referred to as the Employee Plans Compliance Resolution System (EPCRS). EPCRS is designed to improve overall plan compliance by promoting voluntary corrections after a plan sponsor discovers an error. Oftentimes the financial impact to the plan sponsor who self-corrects the plan defect is much smaller than it would be had the defect been discovered during an IRS audit.

The IRS has recently updated its EPCRS program to make it easier for plans to correct certain operational mistakes, including mistakes related to employee deferrals.
For example, certain types of mistakes can occur more frequently in plans that adopt automatic contribution features, such as not automatically enrolling a newly eligible employee, or failing to implement an automatic deferral increase schedule. Correcting these errors can be costly. In hopes of encouraging the adoption of automatic contribution features in more plans, the IRS has introduced new safe harbor correction methods that make it easier and less costly for plan sponsors to correct these types of failures.

The new guidance provides safe harbor correction methods for correcting errors related to employee deferrals, which may be used whether or not automatic contribution features are involved. The new guidance also provides a special rule that allows a longer period of time to correct errors specifically related to automatic contribution features. This special rule is only available for mistakes that begin on or before December 31, 2020. The IRS may extend this timeline after evaluating whether the safe harbors increase the adoption rate of automatic contribution features.

Upcoming Filing Deadlines
An upcoming compliance deadline that plan sponsors should keep in mind is the filing of a plan’s Form 5500, Annual Return/Report of Employee Benefit Plan. All Form 5500 series returns and required attachments must be filed electronically with the DOL using the EFAST2 system. The deadline to file is generally the last day of the seventh month following the plan year—July 31, plus extensions, for plans that operate on a calendar-year basis. Plan sponsors who fail to timely file their Form 5500 returns can be subject to penalties under both ERISA and the tax code. The DOL may assess civil penalties of up to $1,100 per day for failure to timely file returns. The IRS may also impose penalties for failures to file timely, including a penalty of $25 for each day the failure continues, up to $15,000 per return or statement.

Plans must also file Form 8955-SSA, Schedule SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits, if required, with the IRS by the same deadline. Form 8955-SSA is the designated successor to Schedule SSA, which used to be filed with Form 5500.