|Know Your Plan's Bonding Requirements
Most retirement plans are required to have an ERISA bond. Despite the vast applicability of this requirement, a surprising number of plan sponsors are either unaware of this requirement, have inadequate bonding coverage, or simply assume that their bonding requirement is covered under fiduciary liability insurance.
In general, Section 412 of the Employee Retirement Income Act of 1974 (ERISA) requires every person who handles funds or other property of an employee benefit plan to be bonded unless covered by an ERISA exemption. The term "handles funds or other property" generally applies to the plan administrator and those officers and employees of the plan sponsor (employer, board of directors, plan committees, or employee organizations) who handle funds by virtue of their duties for the receipt, safekeeping, and disbursement of plan funds. Applicable activities include:
- Physical contact with cash, checks or similar property
- Power to transfer funds from the plan to oneself or a third party
- Power to negotiate plan property
- Disbursement authority or authority to direct others to disburse
- Authority to sign checks or other negotiable instruments
- Supervisory decision-making authority over activities that require bonding
The bond should cover at least 10 percent of the funds handled in the preceding year, subject to a minimum of $1,000 and maximum of $500,000. The maximum threshold increases to $1,000,000 if the plan holds employer securities. For example, a plan with total assets of $3,500,000 would be required to hold minimum ERISA bond coverage of $350,000 ($3,500,000 x 10%), while a plan with total assets of $10,000,000 would reach the maximum coverage of $500,000 (or $1,000,000 if it holds employer securities).
An ERISA bond is a type of insurance that protects plan participants from the acts of fraud or dishonesty such as larceny theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion, and willful misapplication among other acts. If you are relying on a bond of the plan sponsor that is held for other purposes, you should make sure the bond coverage also applies to the retirement plan and qualifies as an ERISA bond.
Fiduciary liability insurance is not the same as an ERISA bond. While an ERISA bond protects plan participants from the acts of fraud and dishonesty as previously described, fiduciary liability insurance protects the plan's fiduciaries from claims relating to a fiduciary breach under ERISA. Thus, the ERISA bond protects the participants while the fiduciary liability insurance protects the fiduciaries. Although fiduciary liability insurance isn't required by ERISA, as is an ERISA bond, every fiduciary of an ERISA plan should seriously consider obtaining this coverage as well.
Author: Randy Juedes, CPA
|Free Webinar: Payroll and Year-End Reporting
Date: December 7, 2017
Time: 9:00 -10:30 a.m.
As an employer, you know year-end payroll processing and reporting is a complex duty that adds to the stress of closing the books for the year. To ensure a smooth, error-free year, please join us for our Payroll and Year-End Reporting Webinar. This webinar is offered to bookkeepers, business owners and payroll professionals free of charge.
We will address compliance issues of year-end payroll processing and reporting and bring you up to date on the latest changes that affect the close of 2017 and beginning of 2018. Topics covered in the hour and a half webinar will include:
- Fringe benefits
- W-2 add backs
- ACA reporting
- Independent contractor issues
- 1099 rules and due dates
Reserve Your Spot Today.
|ACA 1095 Reporting Got You Stressed?
Yes, you still need to file Form 1095 required by the Affordable Care Act. Let us help you get it done fast and for a better value than other ACA 1095 reporting services.
1095Hawk is a complete ACA reporting service that accurately prepares Forms 1095 and 1094, provides 1095-C code determination, delivers forms to employees and e-files forms on the employers' behalf. With 1095Hawk, all of this is done with minimal data entry.
The ACA experts at Hawkins Ash CPAs review all forms and are available to assist employers with affordability and penalty consulting, e-file errors and TIN correction.
1095Hawk and the professionals at Hawkins Ash CPAs are here to help. You will receive attentive and complete service that includes the following:
- Reporting that is compatible with any payroll service.
- Assistance in attaining the required data.
- We determine lines 14,15 and 16 for you, using minimal input.
- Easy import of our census spreadsheet.
- Three method options for form distribution to employees.
- Electronic IRS filing and assistance with handling rejected forms.
- CPA reviewed forms for assured accuracy.
- Penalty consulting, if needed.
There, you can learn more about the cloud-based service and view pricing options.
If you have questions, please contact us:
|How to Create a Cyber Security Plan
Earlier this year Equifax, one of the country's largest credit reporting agencies, announced that its systems were hacked. In addition, Yahoo revealed its 2013 data breach actually included all 3 billion of its accounts when initially it was thought to be only 1 billion. These breaches exposed items such as social security numbers, addresses, birth dates, phone numbers, driver's license numbers, security question answers, and other sensitive data. In light of these incidents, it is more important than ever to protect both the plan sponsor and plan participants from such attacks.
Plan sponsors have a fiduciary duty to protect and preserve the assets of employee benefit plans. To reduce the risk of a data breach, we recommend plan fiduciaries take the following steps:
- Evaluate the data security measures currently implemented by the plan sponsor
- Coordinate with IT departments or consultants on data security initiatives
- Know and understand the plan's service providers' security procedures
- Consider additional security measures offered by the plan's service providers, such as adding two-step authentication
- Review the plan's service providers' contracts to ensure they address data security and provide appropriate protection to the plan, participants, and beneficiaries
Plan sponsors should also consider communicating security tips to plan participants. Participants can further safeguard their retirement plan accounts using the following techniques:
- Create a unique username
- Create a strong and unique password
- Keep usernames and passwords private
- Ensure all contact information is accurate and up-to-date
- Update security questions and answers
- Regularly monitor account activity and report concerns as soon as they are noticed
Plan fiduciaries should document any measures taken to improve data security, including all interactions with service providers and any changes implemented.
If you have any questions on cybersecurity, please contact a member of the Hawkins Ash CPAs employee benefit plan team for assistance.
Charles Wendlandt, CPA
Administering 401(k) Plan Hardship Withdrawals
Plan sponsors face many administrative challenges managing their 401(k) plans. One significant challenge is correctly documenting hardship distributions. Many plans currently allow their third party administrator to review, approve, and maintain the supporting documentation. On February 23, 2017, the IRS published guidance to their auditors about documentation needed for hardship distributions during an IRS audit of a 401(k) plan (https://www.irs.gov/pub/foia/ig/spder/tege-04-0217-0008.pdf). This guidance did not change any existing laws or requirements to keep the plan in compliance, but it did outline documentation that should be kept by the plan to prove a hardship distribution.
Hardship distributions are "deemed to be on account of an immediate and heavy financial need" for one or more of the following:
- Expenses for medical care deductible under section 213(d) for the employee or the employee's spouse, children or dependents (as defined in section 152) or primary beneficiary under the plan
- Costs directly related to the purchase of a principal residence
- Payment of tuition, related educational fees, room and board expenses for up to the next 12 months of post-secondary education for the employee or the employee's spouse, children or dependents (as defined in section 152) or primary beneficiary under the plan
- Payments necessary to prevent the eviction of the employee from the employee's principal residence or foreclosure of the mortgage on that residence
- Payments for burial or funeral expenses for the employee's deceased parents, spouse, children or dependents (as defined in section 152) or primary beneficiary under the plan
- Expenses for the repair of damages to the employee's principal residence that would qualify for the casualty deduction under section 165
The guidance states that the general information for a hardship distribution that must be kept is:
- Participant's name
- Total cost of the event causing hardship (for example, total cost of medical care, total cost of funeral/burial expenses, payment needed to avoid foreclosure or eviction)
- Amount of distribution requested
- Certification by the participant that the information provided is true and accurate
- The recipient's agreement to preserve source documents and to make them available at any time, upon request, to the employer or administrator
There are other pieces of information listed in the notice that is required based on what the hardship distribution is for.
Ultimately, the plan sponsor is responsible to maintain the documentation for the hardship distribution. If proper documentation is not kept, the IRS can go as far as disqualify the entire plan. Upon audit, the documentation may be requested by the IRS Auditor to determine if the plan has been operated in accordance with its terms, the Code and regulations. Plan sponsors should review their procedures for approving and maintaining hardship distribution documentation.
Please contact Hawkins Ash CPAs for any questions about maintaining your retirement plan.