Are You ERISA Compliant? Follow This Checklist

Many businesses offer some form of qualified retirement plan and, in doing so, they fall under the governance guidelines of the Employee Retirement Income Security Act of 1974, better known as ERISA. ERISA establishes guidelines and minimum standards designed to protect employees of private sector companies who participate in retirement and welfare benefit plans. Businesses administering a qualified retirement plan that aren’t in full compliance with ERISA could be subject to costly penalties.

If your employee retirement plan provides a future retirement income or allows employees to defer earnings for retirement, then it is an ERISA plan. As an employer who provides these ERISA plan benefits, you are also considered by ERISA to be a named fiduciary who takes on the responsibility of administering these plans and, likewise, the liability should your plans not comply with the guidelines and standards established by ERISA.

Key Takeaways

  • ERISA implements rules preventing retirement plan fiduciaries from misusing plan assets and sets minimum standards for participation, vesting, benefit accrual, and funding of retirement plans.
  • Firms that offer qualified retirement plans to employees must be ERISA compliant to maintain tax-favored status, and will often seek out a third-party administrator to ensure all guidelines are met.
  • ERISA compliance involves both start-up procedures as well as maintaining ongoing requirements.

Getting Compliant With ERISA

Meeting ERISA compliance requirements does not have to be overly burdensome. While there are a lot of requirements, a good third-party administrator (TPA) can shoulder much of the burden. Many of the requirements are calendar-driven, requiring filing forms by specific deadlines.

These deadline dates form one checklist that can be managed by a TPA or a human resources staff person. Other requirements are to be met on an ad hoc basis as circumstances dictate.

ERISA Calendar Checklist

Administering 401(k) plans involves performing certain ERISA compliance tasks according to an annual schedule. These are the most common tasks that should be a part of most companies’ checklists.

  1. First Quarter of the Plan Year: Provide fourth-quarter benefit statements to plan participants no later than 45 days after the end of the quarter. Make prior-year employer contributions for a tax deduction to count in the prior year.
  2. Second Quarter: Provide first-quarter benefit statements to plan participants. Distribute excess deferrals made above the IRC Section 402(g) limit. For plan participants turning age 72 in the prior year, distribute first-year required minimum distributions (RMDs).
  3. Third Quarter: Provide second-quarter benefit statements. File Form 5500 for the prior year or file Form 5558 for a 2.5-month extension. If the plan document was modified during the prior year, distribute a new Summary Plan Description to plan participants. Distribute a Summary Annual Report for the prior year to plan participants.
  4. Fourth Quarter: Provide third-quarter benefit statements. Send applicable notices to participants, including installments of or changes to a safe harbor 401(k) plan, Qualified Default Investment Alternative (QDIA), or automatic enrollment. Correct any ADP/ACP test failures, and pay 10% excise tax.

Ongoing ERISA Requirements

Some ERISA requirements are ongoing as part of the plan administration or triggered by occurrences. Below are some of the most common notifications and guidelines which must be followed by ERISA-compliant firms:

  • Adherence to Plan Document: Ensure the plan management continuously adheres to the plan document's terms. The IRS considers any failure to strictly follow the plan document's terms an operational defect, which, if not remedied, can result in plan disqualification.
  • Annual Participant Fee Disclosure: All plan-eligible employees, terminated employees, and beneficiaries with an account balance must receive a participant fee disclosure every 12 months.
  • Notice of Plan Change: Participants must be notified of any changes to the plan 30 to 90 days before the effective date of the change.
  • Opportunity to Enroll: All employees who have met the plan age and service requirements must be given the opportunity to enroll. They should receive all necessary forms and instructions along with a Summary Plan Description and any applicable participant notices.
  • Loan Compliance: Ensure outstanding loans are being repaid in accordance with the plan’s policy terms and the borrowers’ promissory note.
  • Timely Deposits: Ensure that employee deferrals and loan payments are deposited on time, typically at the same time as payroll tax deposits.
  • Conduct Quarterly Housekeeping: Cash out small account balances for terminated employees. Process loan defaults, and use any unallocated forfeitures.

Although most of these requirements can be managed by a TPA, the employer-plan sponsor has the fiduciary duty to ensure they are met and performed correctly.

Article Sources
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  1. U.S. Department of Labor. "FAQs About Retirement Plans and ERISA," Page 1.

  2. U.S. Department of Labor. "Meeting Your Fiduciary Responsibility," Pages 1-3.

  3. Internal Revenue Service. "Retirement Topics—What Happens When an Employee Has Elective Deferrals in Excess of the Limits?"

  4. Internal Revenue Service. "Retirement Topics—Required Minimum Distributions (RMDs)."

  5. Internal Revenue Service. "Form 5500 Corner."

  6. U.S. Department of Labor. "Meeting Your Fiduciary Responsibility," Pages 9-10.

  7. U.S. Department of Labor. "Reporting and Disclosure Guide for Employee Benefit Plans," Page 11.

  8. Internal Revenue Service. "401(k) Plan Fix-It Guide —The Plan Failed the 401(k) ADP and ACP Nondiscrimination Tests."

  9. U.S. Department of Labor. "Reporting and Disclosure Guide for Employee Benefit Plans," Page 13.

  10. Internal Revenue Service. "Retirement Plan Reporting and Disclosure Requirements," Page 12.

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