Regulators Doing More to Ensure Plan Compliance, Outcomes

October 27, 2014 ( – Recent actions from regulators show a focus on compliance and improved outcomes for participants.

The Internal Revenue Service’s (IRS) latest area of interest, according to Ilene H. Ferenczy, an attorney with Ferenczy Benefits Law Center, is processes. Processes could include policies, systems, computer programs and activities of the plan sponsor, she explains.

“The IRS believes plans with proper internal controls are better administered; maybe they won’t have to review as much and can get out of reviews faster,” she told attendees of the 2014 Association of Pension Professionals and Actuaries (ASPPA) Annual Conference.

Ferenczy also noted that “theoretically,” sanctions due to errors found on audit will be lower if plan sponsors have proper internal controls in place, because controls “are an ‘equity’ in the plan sponsor’s favor.” She added that the IRS was going to use information it gathered in its 401(k) questionnaire to issue some guidance about proper internal controls, but that effort will not be executed.

Regulators are also focused on lifetime income. Just last week the IRS issued guidance that allows for deferred annuities to be included in target-date funds’ underlying investments. S. Derrin Watson, an attorney with SunGard, told conference attendees the inclusion of annuities in certain TDF series will mean, for those series, plan participants must select or be placed in the TDF investment corresponding with their expected retirement age or date. “Now, I could invest in a 2040 fund even though that is years from my expected retirement age,” he said. “TDFs with annuities will be more restrictive than this because now the funds with the earliest dates may include longevity annuities.”

In a separate discussion at the conference, speakers noted that an accompanying letter from the Department of Labor shows the DOL obviously understands employer’s concerns regarding fiduciary responsibility if participants are offered annuities. In its letter, the DOL noted that plan sponsors are responsible for selecting the TDF manager, but the TDF manager would have responsibility for selecting the annuity and annuity provider.

Ferenczy and Watson also mentioned a few items plan sponsors and advisers may look for from regulators. The IRS is working on an updated Employee Plans Compliance Resolution System (EPCRS). The update is expected it to address fixes for automatic enrollment errors, and the ability to self-correct loan errors.

Watson also said he expects to see more adjustments to the 403(b) pre-approved plan program. The IRS has already delayed the deadline for submissions of pre-approved documents, modifying the rules for submitting volume submitter plans.

Ferenczy said DOL Assistant Secretary Phyllis Borzi has announced that plan fiduciaries that perform any misconduct related to retirement plans will soon have a public record for that misconduct. The DOL intends to keep a prohibited persons list that those looking to hire someone to work for their plans may access.