The DOL announced the release of a Field Assistance Bulletin (FAB) concerning new disclosure requirements mandated by the PPA. Washington - The U.S. Department of Labor's Employee Benefits Security Administration (EBSA) today released Field Assistance Bulletin (FAB) 2009-01 concerning new disclosure requirements mandated by the Pension Protection Act of 2006 (PPA). The PPA amended the Employee Retirement Income Security Act of 1974 (ERISA) to require plan administrators of defined benefit pension plans to provide participants and others with information annually about the funding status of their plans. An estimated 1,500 multiemployer plans covering approximately 10 million participants and beneficiaries plus 29,000 single-employer plans covering approximately 33.8 million participants and beneficiaries are subject to the new disclosure requirements. Many of these plans must furnish their first annual funding notice under the new law no later than April 30, 2009. The FAB addresses a need for interim guidance pending the adoption of regulations or other guidance under section 101(f) of ERISA by announcing a "good faith" enforcement policy. The FAB also includes technical assistance in the form of questions and answers and model annual funding notices. The FAB provides some background information: Section 101(f) of the Employee Retirement Income Security Act (ERISA) sets forth requirements applicable to furnishing annual funding notices. Before the Pension Protection Act of 2006 (PPA), section 101(f) applied only to multiemployer defined benefit plans. Section 501(a) of the PPA amended section 101(f) of ERISA, making significant changes to the annual funding notice requirements. These amendments require administrators of all defined benefit plans that are subject to title IV of ERISA, not only multiemployer plans, to provide an annual funding notice to the Pension Benefit Guaranty Corporation (PBGC), to each plan participant and beneficiary, to each labor organization representing such participants or beneficiaries, and, in the case of a multiemployer plan, to each employer that has an obligation to contribute to the plan. An annual funding notice must include, among other things, the plan's funding percentage, a statement of the value of the plan's assets and liabilities and a description of how the plan's assets are invested as of specific dates, and a description of the benefits under the plan that are eligible to be guaranteed by the PBGC. The PPA amendments to section 101(f) apply to plan years beginning after December 31, 2007, with special rules for disclosing "funding target attainment percentage" or "funded percentage" with respect to any plan year beginning before January 1, 2008. Section 501(c) of the PPA requires the Department to develop a model annual funding notice within one year of the date of enactment of the PPA. Recently, concerns have been expressed about the imminent compliance date of the new annual funding notice requirements, the absence of regulatory guidance from the Department, and the cost and burdens attendant to annual funding notice compliance efforts prior to the adoption of annual funding notice regulations and the issuance of a model annual funding notice by the Department. In recognition of the foregoing, this memorandum provides guidance to the Employee Benefits Security Administration's national and regional offices concerning good faith compliance with the new annual funding notice requirements. It provides for good faith compliance and a model annual funding notice for single-employer and multiemployer defined benefit plans. It also contains 17-Q&As: Related Links:
Saturday, February 14, 2009
Field Assistance Bulletin No. 2009-01 - Defined Benefit Plan Annual Funding Notice - Pension Protection Act of 2006
Saturday, December 13, 2008
Field Assistance Bulletin No. 2008-04 – EBSA issues guidance on fidelity bonding for employee benefit plans
The DOL recently issued guidance on fidelity bonding: Washington – The U.S. Department of Labor's Employee Benefits Security Administration (EBSA) today released Field Assistance Bulletin (FAB) 2008-04, which provides guidance to the agency's national and regional offices on the fidelity bonding requirements under section 412 of the Employee Retirement Income Security Act (ERISA). Section 412 of ERISA requires all persons, including fiduciaries, who handle funds or other property of an employee benefit plan (otherwise referred to as plan officials) to be bonded in accordance with section 412 and the department's regulations unless they are covered by an exemption. Each plan official is required to be bonded for at least 10% of the amount he or she handles, but in no event less than $1,000. The maximum bond amount required under section 412 with regard to any one plan is $500,000 per plan official, or $1 million per plan official in the case of a plan that holds employer securities. EBSA investigators frequently confront fidelity bonding questions during their examinations of ERISA plans. FAB 2008-04 was developed to address these issues and is presented in a question-and-answer format consisting of 42 frequently asked questions (FAQs). The guidance in the FAB covers a variety of issues related to compliance with ERISA's fidelity bonding requirements, including, among other things: whether a bond may use an omnibus clause to name insured plans; how to calculate the bond amount when multiple plans are covered under a single bond; whether the $1 million bond maximum applies in the case of plans that hold employer securities solely as a result of investments in pooled investment funds; and whether third party service providers are subject to the bonding requirements if they handle plan funds. FAB 2008-04 Background ERISA section 412 and related regulations (29 C.F.R. § 2550.412-1 and 29 C.F.R. Part 2580) generally require that every fiduciary of an employee benefit plan and every person who handles funds or other property of such a plan shall be bonded. ERISA's bonding requirements are intended to protect employee benefit plans from risk of loss due to fraud or dishonesty on the part of persons who "handle" plan funds or other property. ERISA refers to persons who handle funds or other property of an employee benefit plan as "plan officials." A plan official must be bonded for at least 10% of the amount of funds he or she handles, subject to a minimum bond amount of $1,000 per plan with respect to which the plan official has handling functions. In most instances, the maximum bond amount that can be required under ERISA with respect to any one plan official is $500,000 per plan. Effective for plan years beginning on or after January 1, 2007, however, the maximum required bond amount is $1,000,000 for plan officials of plans that hold employer securities.(1) Since enactment of ERISA, the Agency has provided various forms of guidance concerning the application of ERISA's bonding requirements. Over the past several years, however, a number of questions have been raised by our Regional Offices and others concerning the bonding rules. In addition, amendments to section 412 that were enacted in the Pension Protection Act of 2006 (PPA) have presented questions concerning the application of those changes to plan fiduciaries and other persons handling plan funds or other property. This Bulletin provides guidance, in a question and answer format, for our Regional Offices concerning the application of ERISA's bonding requirements and the PPA changes thereto. This Bulletin is not intended to address any civil or criminal liability that may result from losses to a plan caused by acts of fraud or dishonesty or violations of ERISA's fiduciary provisions. Questions And Answers ERISA Fidelity Bonds Q-1: What losses must an ERISA bond cover? Exemptions From The Bonding Requirements Q-12: Do ERISA's bonding requirements apply to all employee benefit plans? Funds Or Other Property Q-17: What constitutes "funds or other property" of the plan? Handling Funds Or Other Property Q-18: What does it mean to "handle" funds or other property of an employee benefit plan so as to require bonding under section 412? Form And Scope Of Bond Q-22: Do the regulations require that a bond take a particular form? Bond Terms And Provisions Q-26: Can a bond provide that the one-year "discovery period" required under section 412 will terminate upon the effective date of a replacement bond? Amount Of Bond Q-35: How much coverage must the bond provide?
Q-2: Is an ERISA fidelity bond the same thing as fiduciary liability insurance?
Q-3: Who are the parties to an ERISA fidelity bond?
Q-4: Can I get an ERISA bond from any bonding or insurance company?
Q-5: Who must be bonded?
Q-6: Who is responsible for making sure that plan officials are properly bonded?
Q-7: Must all fiduciaries be bonded?
Q-8: Must service providers to the plan be bonded?
Q-9: Must a person who renders investment advice to a plan be bonded solely by reason of rendering such investment advice?
Q-10: If a service provider is required to be bonded, must the plan purchase the bond?
Q-11: If the plan purchases a bond to meet section 412's requirements, may the plan pay for the bond out of plan assets?
Q-13: What plans are considered "unfunded" so as to be exempt from ERISA's bonding requirements?
Q-14: Are fully-insured plans "unfunded" for purposes of ERISA's bonding requirements?
Q-15: Are there any other exemptions from ERISA's bonding provisions for persons who handle funds or other property of employee benefit plans?
Q-16: Are SEPs and SIMPLE IRAs subject to ERISA's bonding requirements?
Q-19: If the plan provides that a plan committee has the authority to direct a corporate trustee, who has custody of plan funds, to pay benefits to plan participants, are the committee members "handling" plan funds or property?
Q-20: If the committee makes investment decisions for the plan, are the committee members "handling" plan funds or other property?
Q-21: Are the committee members considered to be "handling" funds if the committee only recommends investments?
Q-23: Can a bond insure more than one plan?
Q-24: If the bond insures more than one plan, can a claim by one plan reduce the amount of coverage available to other plans insured on the bond?
Q-25: Can a plan or service provider obtain bonds from more than one bonding company covering the same plan or plans?
Q-27: Can a bond exclude coverage for situations where an employer or plan sponsor "knew or should have known" that a theft was likely?
Q-28: My plan cannot obtain a bond covering a certain plan official who allegedly committed an act of fraud or dishonesty in the past. What should the plan do?
Q-29: If an employee benefit plan is added as a named insured to a company's existing crime bond, which covers employees but specifically excludes the company owner, does the plan's coverage under the crime bond satisfy the requirements of section 412?
Q-30: Can the bond have a deductible?
Q-31: Must the plan be named as an insured on the bond for the bond to satisfy ERISA's requirements?
Q-32: Can bonds use an "omnibus clause" to name plans as insureds?
Q-33: May a bond be written for a period longer than one year?
Q-34: If a bond is issued for more than one year, is it acceptable to use an ERISA "inflation guard" provision with regard to the amount of the bond?
Q-36: Can a bond be for an amount greater than $500,000, or $1,000,000 for plans that hold employer securities?
Q-37: If a person handles only $5,000 in one plan, so that 10% of the funds he handles is only $500, can the bond be in the amount of $500?
Q-38: Is every plan whose investments include employer securities subject to the increased maximum bond amount of $1,000,000?
Q-39: Must a bond state a specific dollar amount of coverage?
Q-40: My company's plan has funds totaling $1,000,000, and nine employees of the plan sponsor each handle all of those funds. If all nine employees are covered under the same bond, for what amount must the bond be written?
Q-41: What happens if the amount of funds handled increases during the plan year after the bond is purchased—must the bond be updated during the plan year to reflect the increase?
Q-42: How can the plan set the bond amount if there is no preceding plan year from which to measure the amount of funds each person handled?
Additional Notes and Links
- Department of the Treasury's Listing of Approved Sureties (Department Circular 570)
- Plan assets can be used to purchase fidelity bonds and fiduciary liability insurance
- The decision of type and coverage of fidelity bond is a fiduciary decision. The DOL makes it clear that the choice of fidelity bond type (blanket fidelity bond or schedule fidelity bond) and coverage is a fiduciary decision.
- No specific penalties exist for failure to have or maintain a fidelity bond, though the DOL could sue and/or a small plan could lose its annual audit requirement exemption.
- Fidelity Bonding Under the Employee Retirement Income Security Act (DOL 1995)
Blog Posts
Related Links
Tuesday, April 29, 2008
Field Assistance Bulletin No. 2008-03 – Guidance Regarding Qualified Default Investment Alternatives (29 CFR § 2550.404c-5)
Field Assistance Bulletin No. 2008-03 – Guidance Regarding Qualified Default Investment Alternatives (29 CFR § 2550.404c-5) The DOL issued guidance and technical corrections to the default investment alternatives regulations: Washington – The U.S. Department of Labor's Employee Benefits Security Administration today announced publication of technical corrections to the final regulation on qualified default investment alternatives along with guidance to clarify the scope and meaning of the final rule. On October 24, 2007, the department published final rule to implement Pension Protection Act provisions providing a safe harbor from liability for fiduciaries of plans in which the contributions of workers who do not provide investment direction (such as automatically enrolled workers) are invested in "qualified default investment alternatives" or QDIAs. The QDIAs are designed to encourage the investment of employee assets in investment vehicles appropriate for long-term retirement savings. The technical corrections affect three areas of the final regulation on QDIAs. These include changes clarifying the preamble example on "round-trip restrictions," expanding the scope of who can manage a QDIA to include a committee that is a named fiduciary of the plan, and correcting the "grandfather" relief for stable value funds. Field Assistance Bulletin 2008-03 provides guidance on a series of frequently asked questions raised by the employee benefit community since publication of the final rule. The questions address issues relating to the scope of the regulation, the notice requirements, the 90-day limitation on fees and restrictions, management and asset allocation of QDIAs, the capital preservation investment option, and the grandfather relief for stable value funds. An updated fact sheet on the default investment regulation can be found at www.dol.gov/ebsa. The technical corrections are to be published in the April 30 edition of the Federal Register. FAB 2008-03 Background On October 24, 2007, the Department of Labor (Department) published a final regulation(1) providing relief from certain fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA) for investments made on behalf of participants or beneficiaries who fail to direct the investment of assets in their individual accounts. See 29 CFR § 2550.404c-5 (hereafter referred to as the "QDIA regulation"). Since publication of the QDIA regulation, a number of issues have been raised concerning the scope and meaning of various provisions of the QDIA regulation. This Bulletin is intended to supplement the QDIA regulation by providing guidance, in a question and answer format, on a number of the most frequently asked questions. Questions And Answers Scope Of QDIA Regulation Q-1. To what extent does the QDIA regulation relieve a plan sponsor from fiduciary liability when the plan sponsor chooses to create and manage a qualified default investment alternative (QDIA) itself using a mix of the plan's available investment alternatives? Q-2. Is relief available under the QDIA regulation for assets invested in a default investment prior to the effective date of the regulation? Q-3. Could a fiduciary obtain the relief referred to in Q-2, above, with respect to assets invested in a QDIA on behalf of participants and beneficiaries who elected to invest in a default investment prior to the effective date of the regulation? Q-4. Is fiduciary relief under the QDIA regulation available if non-elective contributions such as qualified non-elective contributions (QNECs), or the proceeds from litigation or settlements, are invested in a QDIA? Q-5. Does the QDIA regulation, including the preemption provisions, apply to plans under section 403(b) of the Internal Revenue Code (Code)? Notice Requirements Q-6. How much information regarding fees and expenses attendant to a QDIA must be provided in a notice? Can this information be provided by attaching other disclosure documents to the notice? Q-7. Does the flexibility permitted with respect to use of the Treasury Department's electronic distribution rules apply only to the QDIA notice requirement, or more broadly (i.e. to pass-through of investment materials)? Q-8. Do plan sponsors have to combine the QDIA notice required by the regulation with a notice required by Code sections 401(k)(13) and 414(w)? Q-9. Are the timing requirements for the notices required by the Department of Labor's QDIA regulation the same as the timing requirements for the notices required by the Treasury Department's proposed regulations under Code sections 401(k)(13) and 414(w)? Q-10. Can the QDIA notice be combined with the Code section 401(k)(12) safe harbor notice in the same manner that it can be combined with the Code section 401(k)(13) and 414(w) notices? 90-Day Limitation On Fees And Restrictions Q-11. Would the payment of a fee or expense (e.g., redemption fee) by a plan sponsor or service provider that would otherwise be assessed to the account of a participant or beneficiary during the initial 90-day period satisfy the requirements of paragraph (c)(5)(ii) of § 2550.404c-5? Q-12. For purposes of § 2550.404c-5(c)(5)(ii), does the 90-day clock start from the date an investment becomes a QDIA, or does it begin only in reference to a participant who is being newly "defaulted" into a QDIA? Q-13. Is a QDIA prohibited from including any "round-trip" restriction for the first ninety days? QDIAs – Management And Asset Allocation Q-14. Can an investment fund or product with zero fixed income (or, alternatively, zero equity) qualify as one of the permanent, long-term QDIAs described in paragraph (e)(4)(i) through (iii) of the final regulation? Q-15. The QDIA regulation, at § 2550.404c-5(c)(4), requires that defaulted participants be provided material in accordance with the regulations governing ERISA section 404(c) plans. Is the QDIA regulation intended to require that all of the referenced information be furnished automatically, without regard to whether some of the information for ERISA section 404(c) plans is required to be provided only upon request of a participant or beneficiary? Q-16. Can a plan sponsor use two different QDIAs, for example, one for its automatic contribution arrangement, but another for rollover contributions? Q-17. In the case of an individual account plan sponsored by a single employer, can a committee that is established by a plan sponsor and that, pursuant to the documents and instruments governing the plan, is a named fiduciary of the plan be treated as managing a QDIA for purposes of paragraph (e)(3)(i)(C) of § 2550.404c-5? 120-Day Capital Preservation QDIA Q-18. Is the 120-day capital preservation QDIA, described in paragraph (e)(4)(iv) of § 2550.404c-5, available only for plans that include an EACA? Q-19. Are plans required to provide a 120-day capital preservation QDIA? Q-20. Can a plan sponsor manage the 120-day capital preservation QDIA? Grandfather-Type Relief For Stable Value Funds Q-21. Must a plan sponsor distribute a notice thirty days before the effective date of the QDIA regulation to obtain relief for prior contributions to a stable value fund or product? Q-22. What types of stable value products or funds did the Department intend to include as QDIAs for purposes of the "grandfather"-type relief described in paragraph (e)(4)(v) of § 2550.404c-5? Technical Corrections 29 CFR Part 2550 RIN 1210-AB10 Default Investment Alternatives Under Participant Directed Individual Account Plans QDIA Guidance: Default Investment Alternatives Under Participant Directed Individual Account Plans
Blog Posts/Updates:
Qualified Default Investment Alternatives (QDIA) – DOL Final Regulations
Related Links
- News Release
- Field Assistance Bulletin No. 2008-03 – Guidance Regarding Qualified Default Investment Alternatives (29 CFR § 2550.404c-5)
- QDIA Guidance: Default Investment Alternatives Under Participant Directed Individual Account Plans
- Fact Sheet: Regulation Relating To Qualified Default Investment Alternatives In Participant-Directed Individual Account Plans
- DOL Final Regulation - Default Investment Alternatives Under Participant Directed Individual Account Plans; Final Rule [10/24/2007] [HTML]
- DOL Final Regulation - Default Investment Alternatives Under Participant Directed Individual Account Plans; Final Rule [10/24/2007] [PDF]
- DOL Proposed Regulation - Default Investment Alternatives Under Participant Directed Individual Account Plans [09/27/2006] [HTML]
- DOL Proposed Regulation - Default Investment Alternatives Under Participant Directed Individual Account Plans [09/27/2006] [PDF]
- Pension Protection Act of 2006 (PPA) (Public Law 109–280—Aug. 17, 2006)
Friday, February 1, 2008
Field Assistance Bulletin No. 2008-01 – Fiduciary Responsibility for Collection of Delinquent Contributions
Field Assistance Bulletin No. 2008-01 – Fiduciary Responsibility for Collection of Delinquent Contributions The DOL's Employee Benefits Security Administration (EBSA) released a Field Assistance Bulletin on the collection of delinquent contributions: "Washington – The U.S. Department of Labor's Employee Benefits Security Administration (EBSA) today released Field Assistance Bulletin (FAB) 2008-01 that provides guidance to field investigators on the responsibilities of plan fiduciaries and trustees with respect to monitoring and collecting delinquent employer and employee contributions owed to employee benefit plans governed by the Employee Retirement Income Security Act (ERISA). The FAB was developed in response to a number of EBSA pension plan investigations that uncovered arrangements that purported to relieve all of a plan's fiduciaries and trustees of any responsibility to monitor and collect delinquent contributions." Related Links:
