Auditor Says Many Sponsors Don't Know Plan Documents, Aren't Aware They're Fiduciaries

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By Sean Forbes

Oct. 29 — Some of the most common problems audits uncover in retirement plans come down to the basics: the plan sponsor must have a plan document, know where it is, and be familiar with what's in it, a plan auditor said Oct. 29.

Too many plan sponsors have missed those basics, and many don't even realize they are fiduciaries as defined by the Employee Retirement Income Security Act, said Diane M. Wasser, partner-in-charge and founder of EisnerAmper LLP Pension Services Group, based in Iselin, N.J.

“I could say that at any given time, 30 percent of our clients have no idea that they're fiduciaries,” Wasser said. Furthermore, the sponsors “absolutely do not understand the magnitude of the responsibility that they have.”

Wasser spoke at the annual conference of the American Society of Pension Professionals and Actuaries.

Plan sponsors need to pay attention to the plan document and also to the internal controls they've set up to run their plans, she said.

Sponsors should also understand that “internal controls” are a process, carried out by the individuals charged with plan governance, management and other personnel. The process is designed to provide reasonable assurance that the plan's objectives will be achieved in regard to the reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations, Wasser said.

She said that internal controls protect plans in two ways: by preventing errors and discouraging fraud, and by discovering small errors before they have a chance to grow into large ones.

Errors and Defects 

Most plan problems result from lack of oversight and lack of attention to governing documents and service agreements, Wasser said.

Wasser said in one case she dealt with, a client had to pay a $5,000 fine simply because it couldn't produce a signed plan document when it was audited by the Department of Labor.

“It was a rude awakening,” she said.

Common operational plan defects include disagreements between different documents about the definition of compensation, eligibility provisions, and automatic enrollment shortfalls, Wasser said.

Compensation definition problems are very common, Wasser said, estimating that 90 percent of the plans she has handled had this problem, even those with “robust” internal controls.

Many times there are different definitions of compensation within a plan, which can lead to operational errors, such as the definition being applied incorrectly, she said. Such errors happen mostly because there was a plan amendment that failed to take into account a change in how compensation is measured, or a change in provider and the sponsor hadn't reviewed how the new provider defines compensation, she said.

Untimely Deferrals

The most commonly seen prohibited transaction is a sponsor's untimely deposit of plan participants' elective salary deferrals to their 401(k) accounts, she said.

The Internal Revenue Service has provided guidance that deferrals must be deposited to the plan's trust on the earliest date they can reasonably be segregated from the employer's general assets, but in no case later than 15 business days in the month following the month in which the amounts would otherwise have been payable to employees in cash.

But the definition Wasser's firm follows is “as soon as administratively possible,” she said.

Each sponsor will have to determine for its own plan what is administratively feasible, and then abide by that determination, she said.

Richard A. Hochman, president of McKay Hochman Co. Inc., in Butler, N.J., who moderated the session, said he had a case in which a sponsor had made its deferral deposit within the same time frame throughout the year, except for the last pay period. In that last period, the sponsor rushed to make the deposit sooner. When the DOL audited the plan, it determined that all the previous deferrals for that year had been made late, he said.

“Be rational and come up with a standard for your operation, explain the standard, and then follow the standard,” Hochman said.

To contact the reporter on this story: Sean Forbes in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at


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