Do you know who’s who in the world of the 401(k)? With 401(k) plans set to celebrate their 40th birthday in 2018, their popularity continues to grow. Assets neared the $5 trillion mark at the end of 2016. 401(k) plans are a great way for participants to save for their retirement. And an important benefit that companies offer to their employees.
As a plan sponsor, you know that different entities have oversight of your 401(k)—ERISA, IRS, DOL and EBSA. It can get confusing.
ERISA and its Three Agencies
In the highly-regulated industry of employer-sponsored retirement plans, Big Brother (the federal government) is watching out for plan participants and plan sponsors. Let’s start with the legislation.
ERISA (Employee Retirement Income Securities Act) was enacted in 1974. It protects the interests of employee benefit plan participants and their beneficiaries. ERISA requires disclosure of financial information concerning the plan to beneficiaries. It also establishes standards of conduct for fiduciaries of the plan, as well as providing remedies and access to federal courts if something goes wrong.
ERISA’s complex coverage has 4 titles and gives responsibility for the interpretation and enforcement to three agencies. It’s divided among the U.S. Department of Labor (DOL), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC). We’ll focus on the DOL and the IRS, as the PBGC covers defined benefit pension plans.
Simply put, the IRS primarily focuses on ERISA’s qualification requirements, while the DOL emphasizes fiduciary provisions and prohibited transactions in ERISA.
The four Titles include:
Title I: Administered by the DOL, it contains rules for reporting and disclosure, vesting, participation, funding, fiduciary conduct, and civil enforcement. Title I’s goal is to protect participants’ interests and their beneficiaries in employee benefit plans.
Title II: Administered by the IRS and amended by the Internal Revenue Code to parallel many of the Title I rules, Title II includes standards that must be met by employee retirement benefit plans in order to qualify for favorable tax treatment. Noncompliance with these ERISA tax requirements may result in either plan disqualification and/or other penalties.
Title III: Concerned with jurisdictional matters and the coordination of DOL and IRS enforcement and regulatory activities.
Title IV: Administered by the PBGC to cover the defined benefit pension plans insurance.
Working together with these agencies has been challenging for enforcement actions, but having this oversight in place helps plan sponsors stay diligent about their policies for documentation and retention, fiduciary practices and corporate governance.
So, What’s EBSA?
Also created in 1974, the Employee Benefits Security Administration (EBSA) is the agency that has responsibility for the administration, regulation, and enforcement of ERISA. It’s an agency of the DOL. Prior to 2003, it was known as the Pension and Welfare Benefits Administration (PWBA).
EBSA’s oversight is vast. From 2015 figures, it extends to almost 681,000 retirement plans, 143 million workers and their dependents and more than $8.7 trillion in assets.
Then we have EBSA’s regulatory actions. This agency is responsible for deterring and correcting ERISA benefit statutes violations through civil, criminal and administrative enforcements. For civil penalties, EBSA can assess fines as a requirement to either change a plan procedure or practice or to make payments to a plan participant or a beneficiary.
In the fiscal year 2016, EBSA closed over 2,000 civil investigations for ERISA violations with 1,356 cases (67.7%) ending with monetary awards or other corrective action. It also returned $777.5 million for total monetary recoveries for non-compliance of ERISA.
When the agency isn’t pursuing cases, it is educating employers, workers, Congressional members and plan sponsors. Their educational efforts include nationwide events, such as: helping displaced workers facing job losses, advising employees about their rights as defined by ERISA, teaching employers about their ERISA obligations, and informing Congressional staff members about EBSA programs for constituent use. In 2016, the number of educational events EBSA hosted reached 2,000.
As you can see, employees and their families have a lot of protections in place thanks to ERISA and EBSA. For plan sponsors and small businesses, these laws and regulations can help you work with employees and maintain your fiduciary duties to act in the best interests of plan participants.
Join the conversation
We would love to hear from you