What causes 401(k) plans to fail? What frustrates plan fiduciaries in understanding their retirement plans? ERISA (Employment Retirement Income Security Act) disasters can handicap American companies. The failure to detect and correct ERISA violations takes its toll in increased human resources and management man hours; additional service provider fees; strained employee relations and microscopic scrutiny from the Internal Revenue Service and the Department of Labor. Companies can prevent ERISA disasters with proper administration and oversight.
See www.irs.gov, "Retirement Plans Community" tab.
2.
The Employee Income Security Act of 1974, as amended. ERISA is the body of laws that regulate employee benefit plans, including retirement plans such as 401(k) plans.
3.
Although the article depicts real-life ERISA disasters, some identifying facts regarding the companies and their plan service providers have been altered.
4.
The tax benefits conferred are: (a) a sponsor of a 401(k) plan can deduct contributions into the plan on its federal income tax return, subject to certain limits; (b) employee contributions and gains are not currently taxed and enjoy tax deferral until distribution; (c) the trust does not pay any income tax and (d) terminating employees have the ability to make tax-free rollovers.
5.
The Internal Revenue Code (the "Code") instead uses the term "disqualified person," but the rules there are really parallel to the DOL’s rules with respect to a fiduciary. The failure to deposit salary deferrals on a timely basis constitutes a prohibited transaction subject to excise tax under Code § 4975, payable by the company with the filing of Form 5330. In addition to the payment of excise tax, the company must correct the transaction, usually consistent with DOL guidelines. Delaying the deposit of salary deferrals until after 12 months following the end of the plan year could result in plan disqualification.
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See generally, Code § 7623 (Informant Claims Program and Whistleblower Rules).
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"Dol, EBSA outline ERISA Title I Enforcement Priority for 2009 and beyond at ‘DOL Speaks’ conference. Pension & Benefits Week Newsletter, 5(38), September 21, 2009.
8.
Although not relevant for Quantum’s case, the IRS and DOL both offer some amnesty through their Delinquent Filer Voluntary Compliance program for when plan sponsors have not filed their Forms 5500.
9.
ERISA § 406(a)(1)(B) and (D).
10.
An expat can exclude income up to $91,400 (in 2009) of foreign earnings. See Code § 911. Furthermore, an expat’s employer is not required to withhold U.S. income tax from the portion of wages earned abroad that is equal to the foreign earned income exclusion and if the employer has good reason to believe that the expat will qualify for the exclusion. Typically, the expat provides a statement to his employer indicating that is so. See generally IRS Form 625 for an acceptable statement for a U.S. expat to provide to an employer.
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It would be an oddity that there would be an expat who would make only so much of Box 1 wages with all of such wages deferred into the 401(k) plan. Under that rare situation, then Box 1 could therefore be zero.
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The IRS has already begun an audit initiative with respect to employment taxes that will affect some 5,000 to 6,000 companies into year 2012. Though the initiative will analyze worker classification issues (and payment of related employment taxes), fringe benefits, officer compensation and reimbursed expenses, it may be wise for companies like Cerbu to start with their W-2s and the payroll service providers who prepare them. See www.irs.gov, "Tax Gap Analysis Subgroup Report (2008 IRSAC Report)."
13.
See italicized items on Figure 1.
14.
For now, the correction for 2009 is ignored, as there is still current employee compensation from which to apply the automatic 3% enrollment. (This is why an employer might want to use the IRS EPCRS program; such a program gives IRS personnel latitude to accept creative, but fair, corrective solutions.)
15.
IRS’s Tax Information for Sponsors of Retirement Plans, Volume 6, Summer 2009.
