Employment Law Updates

REIMBURSEMENTS DONE RIGHT

It is a common business practice for employers to reimburse their employees for certain job-related expenses.  If the reimbursement is made through an “accountable plan,” the reimbursement is not included in the employee’s income.  An accountable plan is a reimbursement or allowance arrangement that meets the following three requirements:  (1) the reimbursed expense has a business connection, (2) the employee is required to adequately account to the employer about the expense, generally by submitting a receipt, and (3) the employee is required to return any excess reimbursement within a reasonable time.  If the accountable plan requirements are not met, the reimbursement is included in the employee’s income and subject to wage withholding and payroll taxes.  For more information on accountable plans, see page 49 of IRS Publication 535.  You can also click here for information on accountable plans.

WATCH THOSE 401(k) FEES

Employers who sponsor 401(k) plans have a fiduciary responsibility, either directly or through their trustees, to determine that the fees incurred in the operation of the plan are reasonable. This should be done when establishing a plan and periodically thereafter.  The Department of Labor has provided a checklist to help you determine the reasonableness of fees.  You can click here for that checklist.  When comparing fees quoted by various vendors, this checklist should be used and then kept in the plan records, as the Department of Labor may request evidence of the process used in agreeing to and monitoring fees.  The Department’s general website relating to retirement plans provides a wealth of information on other topics as well.  You can click here for that website.

MISTAKES HAPPEN—DOL PROGRAM TO ALLOW LATE FILING OF FORM 5500 FOR AN EMPLOYEE BENEFIT PLAN

Each year most pension and welfare benefit plans subject to ERISA must file a Form 5500 to report their financial condition, investments, and operations (some plans need not file Form 5500, such as unfunded or insured plans with under 100 participants).  Very large penalties can be imposed for late filing or non-filing of Form 5500.  The Department of Labor’s Delinquent Filer Voluntary Compliance (DFVC) Program allows plan administrators to voluntarily correct a late or unfiled Form 5500 by submitting a completed Form 5500 and paying a greatly reduced penalty.  For a brief explanation of the DFVC Program, click here.   For answers to frequently asked questions, click here.

MISTAKES HAPPEN—IRS PROGRAM TO CORRECT ERRORS IN ADMINISTERING QUALIFIED RETIREMENT PLANS

Qualified retirement plans must be operated according to the terms of their plan documents and the requirements of the tax code.  Failure to meet this “operational” requirement jeopardizes the plan’s tax favored status.  If an employer’s plan fails this operational requirement, the employer can usually correct the error by using the Internal Revenue Service correction program known as the Employer Plans Compliance Resolution System (EPCRS).  Some errors can be “self-corrected” under EPCRS without asking IRS approval.  Others require submitting an application and supporting documents to the IRS.  To learn more about EPCRS and correcting plan errors, click here.  To see whether you can self-correct an error, look for the Self-Correction Program and the Eligibility Flowcharts links toward the bottom right of the page.

ALLOWING EMPLOYEES MORE CONTROL OVER HEALTHCARE CAN HELP CONTROL EMPLOYER COSTS

As healthcare costs increase, employers that provide health insurance for their employees are trying to control these costs while maintaining benefits.  Some employers do this by changing to “consumer directed health plans.”  By placing some of the costs of healthcare decisions on employees rather than health insurers, consumer directed health plans give employees an incentive to control these costs.  There are a number of different consumer directed health plans, each with its own advantages and limitations.  To learn more about the three major types of consumer directed health plans and how they compare with each other, click here.

FIDUCIARY LIABILITY INSURANCE -- WHY HAVE IT?

Fiduciary liability insurance protects a trustee and the plan administrator of a qualified retirement plan against breaches of fiduciary duty and other errors relating to the administration of the plan and investment decision-making.  This insurance also typically covers the cost of litigation defense.  Premiums generally are based on the amount of coverage and the asset base of the plan.  For example, a policy covering $500,000 of claims on an asset base of approximately $7,000,000 could cost about $700.  Employers usually pay the premium.  For many employers, this cost is money well spent.  (Note that fiduciary liability insurance is not the same as an "ERISA bond," which is required by law.)  The U.S. Department of Labor maintains an informative website that addresses the fiduciary duties of a trustee.