PLANSPONSOR - August/September 2019 - 17

Importantly, " document failures " are
ineligible for self-correction. A document
failure occurs when a plan sponsor has not
kept a plan document up to date or when
the plan document does not fully comply
with the tax law, the IRS explains.
While an insignificant operational
failure can be self-corrected at any time,
plan fiduciaries must self-correct significant
failures within a specific time frame,
as defined by a publicly posted chart.
IRS staff determines " significance "
based on the facts and circumstances,
but factors to consider include: whether
there were other failures; the percentage
of plan assets and contributions involved;
the number of years the error occurred;
how many participants were affected vs.
how many are in the plan; how many were
affected vs. how many could have been
affected; and whether the correction was
made soon after its discovery.
The IRS guidance emphasizes that
no single factor is determinative of significance-e.g.,
failures are not necessarily
significant just because they occur in more
than one year. The IRS states directly that
its staff " will not interpret these factors to
exclude small businesses. "
For its part, the DOL has also
published helpful guidance and fact
sheets about its Voluntary Fiduciary
Compliance Program (VFCP). According
to DOL staff, " anyone who may be liable
for fiduciary violations under ERISA,
including employee benefit plan sponsors,
officials and parties in interest, may
voluntarily apply for relief from enforcement
actions, provided they comply with
the criteria and satisfy the procedures
outlined in the VFCP. "
Sponsors should also be aware of
the IRS' Voluntary Closing Agreement
Program (VCAP). This program helps
fiduciaries resolve certain income or excise
tax issues that involve tax-deferred retirement
plans established under the Internal
Revenue Code (IRC) and not correctible
through the EPCRS. -John Manganaro
Fewer Workers Name
Beneficiaries
OVER THE last decade,
the number of
workers naming a beneficiary for their
retirement account has slightly declined.
Participants automatically enrolled in
their company's plan may miss declaring
a beneficiary, as that is typically done when
the worker voluntarily enrolls. Notably,
Generation X and Millennials are missing
these elections, says Meghan Murphy, vice
president at Fidelity Investments.
Sponsors that auto-enroll participants
should have them complete a beneficiary
designation form. These forms will establish
beneficiary names, the amount each
person should receive and the relationship
between the beneficiary and participant.
Without a beneficiary name on file,
the process for, say, a spouse seeking the
benefit, can get bogged down in paperwork
and legal wranglings. And just because the
participant named beneficiaries in his will
or prenuptial agreement does not mean
those people will receive his plan assets.
According to advisory firm DWC 401(k)
Investors, because retirement planning
TALKING POINT
Participants Should Know
More About Plan Rollovers
51%
didn't know it's
possible to move
money from an
individual retirement
account to
a 401(k) plan.
42%
of those between
ages 35 and 65 didn't
know they could
have left their assets
in previous employer
plans.
28%
didn't know that
several retirement
plan distribution
options trigger
tax liabilities and
penalties.
Source: Edelman Financial Engines, " Reconsidering the 401(k) Rollover " ; based on a survey
of 1,071 35- through 65-year-olds in the U.S.
documentation is subject to federal law
and estate planning documents to state
law, that latter legal paperwork often gets
overlooked in the beneficiary search.
" It can drastically increase the length
of time it takes for their loved ones to
receive those proceeds, following their
death, " Murphy says.
" Designations are strict once they're
set in place, " says Murphy. " So, if a participant
is in the process of a divorce or having
a baby, updating their beneficiaries should
be on their checklist. " If a beneficiary
cannot be located and the sponsor has
not been contacted requesting beneficiary
payments, there is a probate process,
Murphy says. A sponsor would have to go
through a court process at this point, and,
until a beneficiary is identified or elected,
the deceased participant's assets would
remain invested in the plan.
For these reasons, having an annual
enrollment period, when workers can
confirm beneficiary designations, is critical.
-Amanda Umpierrez
PLANSPONSOR.com August - September 2019 17

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PLANSPONSOR - August/September 2019

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