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Documentation Hardship for Hardships (and Participant Loans, Too)

What is the IRS thinking about when it announces that plan sponsors, even those using a qualified TPA/recordkeeper, should maintain the records for hardship distributions and participant loans?

401(k) plans particularly (although this applies to other types of qualified plans that permit participant loans) have been marketed and promoted to would-be participants as flexible retirement saving arrangements – so flexible that you can take your money back out without a problem either by borrowing it or by taking a hardship distribution. Depending on your perspective, this flexibility may be anathema to the notion of retirement savings, i.e., long-term savings and investing.   America’s 401(k) saving structure is, in this respect, more “flexible” than arrangements in most other countries that have similar plan structures. The unfortunate result of this sort of flexibility is “leakage” – about which officials at Treasury and Labor seem concerned.

So, to beg the obvious question, did the IRS issue this “reminder” to plan sponsors because of its disdain for leakage? In view of the fact that the pronouncement tends to ignore how most 401(k) plans actually operate, one might certainly come to that conclusion.

The IRS says that, for hardship distributions, the plan sponsor (not its TPA) should retain these records in paper or electronic format:

  • Documentation of the hardship request, review and approvalThinkstockPhotos-468601351
  • Financial information and documentation that

FMLA Forms – Best Practices

FMLA Forms – Best Practices

May 8, 2015

Authored by: Christy Phanthavong and Chris Rylands

FormsIf you are responsible for administering your company’s Family and Medical Leave Act (“FMLA”) policy, you know that the associated FMLA forms can be both your best friend and your worst nightmare.

On the one hand, proper use of the forms – such as the various Certifications, the Rights & Responsibilities Notice, and the Designation Notice – can provide valuable information to help you evaluate and manage employees’ leave requests. On the other hand, attempting to comply requirements surrounding the forms, not to mention trying to understand the meaning of information received from medical providers – can be an exercise in frustration.

Below are some “best practices” relating to FMLA forms that may aid in the administration of your FMLA policy:

  • FMLA Employee Request Form: Although the Department of Labor (“DOL”) has not provided a template FMLA request form, employers are permitted to develop and use their own. While implementing such a form (including adding a reference to it in your policy) would not permit ignoring an oral request, requiring employees to submit requests in writing provides a clear method of requesting leave, establishes a record of what leave was requested and when, and creates an opportunity to reiterate expectations surrounding FMLA leave requests.
  • Deadlines: Become familiar with the deadlines for providing various notices to employees (e.g., Notice of Eligibility due within five days of being placed on notice that

You’ll Need Your BIC® for This BIC

You’ll Need Your BIC® for This BIC

May 7, 2015

Authored by: benefitsbclp

Signing a ContractThe Department of Labor (“DOL“) has responded to the concerns of the broker-dealer community as expressed in myriad comment letters concerning the 2010 proposed fiduciary regulations by adding the Best Interest Contract (BIC) exemption to the new proposed rule. The DOL suggests that this addition will minimize compliance costs and allow firms to set their own compensation structures (meaning commission-based fees, revenue sharing, 12b-1 fees and subTA fees) while acting in their client’s best interest. This exemption will be available when advising IRA owners, plan participants and small plans.

Here’s the catch that has drawn a mostly negative reaction from the broker-dealer community:

First: The BIC will be a formal contract committing the advisor and her firm to act with the care, skill, prudence and diligence that a prudent person would exercise based on the circumstances. The advisor and her firm must avoid misleading statements about fees and conflicts of interest. The DOL requires compliance with “impartial conduct standards.” These standards also mandate reasonable compensation for the service rendered.

The concerns: This is a roadmap for the plaintiffs bar as prudent persons can disagree on what is prudent in various circumstances, and reasonable fees may be reasonable to some and not to others. The high cost of “fee litigation” is already a known quantity. Besides, this is a contract, and contracts can be expensive on the front end to

Are You My Fiduciary?

Are You My Fiduciary?

May 5, 2015

Authored by: Lisa Van Fleet

Baby DuckHow many of you remember the classic children’s’ story “Are you My Mother?” by P.D. Eastman?  In that delightful story, we follow a confused but determined baby bird who is looking for his mother.  He sets off to find her, asking various creatures along the way (a dog, a cow, a plane) whether they are his mother, and in the end happily finds his way beneath her protective wing.

The parallels between this story and the proposed Conflict of Interest Regulations are clear (at least to some of us).  The proposed guidance examines the various service providers encountered by retirement plans and IRA owners, as well as their participants and beneficiaries (“retirement investors”) and evaluates whether or not such service providers are fiduciaries who offer a protective wing.  Moreover, the guidance expands the types of services which will be treated as fiduciary in nature, thus increasing the odds that the retirement investors will in fact find the fiduciary protection they seek.

ERISA has always defined a fiduciary to include:

  • a named fiduciary,
  • a person who exercises discretion with respect to management or administration of the plan,
  • a person who exercises discretion with respect to management or disposition of plan assets, or
  • a person who provides investment advice for a fee.

Years ago, regulations were issued to further define who would be regarded as a fiduciary by virtue of

What we’ve got here is a failure to communicate

Unlike the 1967 film, Cool Hand Luke, where the prison warden delivers the above line shortly after giving a beating to prisoner Luke (Paul Newman) for making a sarcastic remark, employers may be worried about a beating from the IRS if they aren’t able to communicate with multiemployer health funds or staffing companies.

Under the Affordable Care Act (“ACA”), employers are required to report on the offers of coverage made to their common law employees. Employers have to provide statements to the employees on Form 1095-C and submit them to the IRS. The reporting includes data elements such as the months coverage was offered, the lowest cost premium for self-only coverage for each month, whether spouses and dependents are eligible, and confirmation that the plan is affordable and provides minimum value. The problem is this: if an offer of coverage is made on behalf of a staffing company or multiemployer plan, how will the employer have this information?

For employers participating in multiemployer plans, the rules allow the multiemployer plan to report on the employers behalf as described in Q&A-24 here. However, even if an employer goes this route, the fund will still need certain data elements from the employer, such as the employee’s compensation or the safe harbor that the employer is using to determine affordability under the ACA. So either way, communication is necessary. Additionally, there is no similar rule for staffing companies.

The key for employers is to work

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