401(k) ERISA Introduction

ERISA Sections

ERISA is comprised of four (4) sections, as follows:

Title I of ERISA: the legal/labor law provisions of ERISA: the provisions include, but are not limited to, the reporting, disclosure & fiduciary standards, and the enforcement provisions.

Title II of ERISA: the tax-related provisions of ERISA: these provisions amended the Internal Revenue Code  (IRC) sections relating to qualified plans.

Title III of ERISA: the administrative provisions of ERISA: these provisions define and divide the responsibilities between the Department of Labor (DOL) & the Internal Revenue Service (IRS).

Title IV of ERISA: the insurance provisions of ERISA: these provisions established the Pension Benefit Guaranty Corporation (PBGC), which provides an insurance program for defined benefit plans.

Most employee retirement plans are covered under ERISA, unless specifically excluded. This is true whether the plans are small or large, although certain obligations vary according to the size and type of plan. Employers assume various roles under ERISA (whether named or by default) and should be aware of what plans ERISA covers and the associated compliance responsibilities and obligations.

Plan Types and Requirements

All employee retirement plans are covered under ERISA, unless specifically excluded by law. They are generally either a defined benefit plan or a defined contribution plan, as follows:

Defined Benefit Plan: a plan which provides for an accrued, or future, benefit that is determined by a formula stated in the plan & provides for definitely determinable benefits.

Defined Contribution Plan: a plan which provides an individual account for each participant and for benefits based solely on the value of that account.

Types of defined contribution plans are:

• Profit Sharing Plans
• Stock Bonus Plans
• Money Purchase Plans
• Target Benefit Plans

A 401(k) plan is either a Profit Sharing Plan or Stock Bonus Plan that allows eligible participants to elect to make contributions from their salary/compensation (as defined by the plan) on a pre-tax basis. A 401(k) plan may also allow other contributions on an after-tax basis.

Typically, a 401(k) Plan is participant-directed, whereby all investment-related decisions regarding where & when to invest plan contributions are made by the participant, rather than by the Plan Sponsor or Plan Administrator.

Reporting and Disclosure

The basic reporting and disclosure obligations for defined contribution plans generally include:

• A Plan Document must exist for each plan, regardless of plan type.
• A Summary Plan Description (SPD) must be automatically furnished to plan participants upon plan enrollment.
• A Summary of Material Modifications (SMM) must be automatically furnished to all eligible plan participants after a material modification to the terms of the plan is made.
• Participant Benefit Statements must be distributed to all plan participants either quarterly for participant-directed plans or annually for non-participant directed plans.
• A Form 5500 must be filed annually.
• A Summary Annual Report (summarizing the Form 5500) must be automatically provided to plan participants.

Bonding

An ERISA section 412 bond (sometimes referred to as an ERISA fidelity bond) must protect the plan against loss by reason of acts of fraud or dishonesty on the part of persons required to be bonded, whether the person acts directly or through connivance with others. The term “fraud or dishonesty” for this purpose encompasses risks of loss that might arise from dishonest or fraudulent acts in handling plan funds or other property. This includes, but is not limited to:

• Larceny;
• Theft;
• Embezzlement;
• Forgery;
• Misappropriation;
• Wrongful abstraction;
• Wrongful conversion; and
• Willful misapplication.

The bond must provide recovery for loss occasioned by such acts even though no personal gain accrues to the person committing the act, and the act is not subject to punishment for a crime or misdemeanor, provided that within the law of the state in which the act is committed, a court would afford recovery under a bond providing protection against fraud or dishonesty.

Agency Focus

The allocation of responsibilities, and therefore each agency’s focus can be summarized as follows:

• The Department of Labor focuses primarily on the fiduciary related and prohibited transactions provisions of ERISA.
• The Internal Revenue Service concentrates on the qualification requirements of ERISA.
• The Pension Benefit Guaranty Corporation focuses on defined benefit plan funding and the insurance requirements of ERISA.

In addition, there are many other employer obligations required under ERISA and the IRC that are covered throughout your Dashboard.