This year, when you make New Year’s resolutions, be sure to have one about checking on the fees you pay to administer your plan. Even a company like Walmart, with its extensive legal resources, recently agreed to pay $13.5 million dollars along with Merrill Lynch for a class action settlement. Without admitting any fiduciary wrongdoing, they agreed to eliminate funds from their plans that carried high fees. A few reminders:

1. Know what fees you pay and be prepared to justify them to your plan participants as well as the DOL.
2. Be sure that record-keeping fees are documented separately from investment management fees.
3. Diversify your plan portfolio, offering choices to plan participants.
4. Communicate all changes to your plan participants and employees – clearly and promptly to avoid any misunderstandings.

Your plan auditor is a good source of information about ways to keep your plan in top fiduciary shape. Another good resource is the AICPA’s Accounting and Auditing Resource Centers.

The scrutiny on employee benefit plan administrators is intense, and plan management will continue to be an extremely important topic as baby boomers retire. A recent case involving plan participants for Kraft Foods Global Inc. creates a mandate for plan fiduciaries:

Plan managers must address the concerns of participants promptly and document all decisions to demonstrate that the plan is operating in the best interests of the participants.

While such a message seems obvious, day-to-day operations can interfere with fulfilling this duty. In the case of Kraft Foods, one of the investment selections was a company stock fund. The fund was ‘unitized’ with plan participants purchasing a ‘unit’ of the fund instead of a share of stock. The fund included cash, which did not increase in value at the same rate as the company shares of stock.  This situation is called ‘investment drag.’ And, while it may be appealing that specific transaction fees are eliminated, there are costs for managing the fund that are taken from the fund in general, and not from individual transactions. Because the fees associated are equally split regardless of number of units traded, a transactional drag’ occurs. In essence, plan participants pay the same fee whether they make one transaction or 10.

In hindsight, plan administrators were expected to address the ‘investment drag’ and ‘transactional drag.’ Because changes to the plan were discussed, but not implemented, the 7^th U.S. Circuit Court of Appeals found the administrators to be acting unreasonably in light of ERISA. Lawsuit situations will not just happen to Fortune 500 companies. All plan fiduciaries need to be vigilantly proactive.

When you think about deadlines you need to meet, the initials IRS and DOL probably come to mind. However, a recent court case provides a timely reminder that plan sponsors have internal deadlines to meet with employees. Essentially, when plans are amended, you need to respond within 30 days to meet an employee’s request for an updated SPD or SMM. Perceived non-compliance of these deadlines can result in fines of up to $110/day.

In the case Kasireddy v. Bank of America Corp. Benefits Committee, 2010 WL 4168512 (N.D. Ill. Oct. 13, 2010), a medical plan participant sued her plan’s benefit committee for failure to provide a copy of the plan’s SPD in response to her written requests. The company provided some information within the 30-day timeframe, although the information was not fully up-to-date. The company was going by the 210-day rule as the timeframe available for notification of updated information. The court disagreed with the company and voted in favor the plan participant’s lawsuit, imposing the strictest penalty possible.

As a plan administrator, it is essential that you keep all materials current regarding the plans you offer. That way, you can confidently respond to employee requests in a timely manner with correct information.

The 2008-2009 financial crisis was a stark reminder of the mortality of our retirement plans. Clearly, investment/overall market performance and employee contribution levels are the greatest factors affecting plan value. But plan sponsors can also put options in place that affect value. From an auditor’s point of view, here are ways you can benefit your plan: Read the rest of this entry »