Protecting Benefit Distributions?

This year, underscoring the critical role retirement plan sponsors play in protecting the money and data of participants, the Employee Benefits Security Administration significantly updated its enforcement priorities, putting cybersecurity at the top of the list. That doesn’t mean however, that we can forget about missing participants or tardy contributions. Here’s a reminder about overseeing retirement plan basics, like contributions and distributions, in a timely manner.

Money In, Money Out

It’s easy to lose the forest for the trees when sponsoring an ERISA retirement plan, so it’s wise to pull back once in a while and take a look at the guts: are participant contributions being deposited into their accounts on schedule? Are distributions being made accurately and on time? If there are missing participants and uncashed checks, what actions are being taken accordingly? Checking in on these matters with third party service providers are concrete examples of the fiduciary oversight plan sponsors must continuously exercise. 

Though the Employee Benefits Security Administration (EBSA) has promised to “be more efficient, responsive, and prioritize serious misconduct rather than minor foot faults,” when it comes to inquiries and investigations, plan sponsors must still take their fiduciary obligations seriously. Currently, it’s helpful to note that EBSA’s priorities for enforcement, which apply to both employer sponsored retirement and health plans, are: 

• • Cybersecurity
  • Barriers to mental health and substance use disorder benefits

• Protecting benefit distributions

• Retirement asset management
• Surprise billing
• Criminal abuse of contributory benefit plans

For the past decade, EBSA has urged vigilance related to uncashed checks and missing participants, which is now captured under the priority area of “Protecting Benefit Distributions.” Specifically, as Elizabeth Goldberg reports at Plan Sponsor, via the Terminated Vested Participants Project, EBSA expects retirement plans to: 

• Maintain adequate census data;
• Use reasonable methods to contact former employees who have earned vested benefits but have not yet begun receiving payments (this could also be done by delegated administrators);
• Provide appropriate notices as participants approach normal retirement age or required minimum distribution age;
• Adopt reasonable search practices; or
• Resolve uncashed checks in a timely manner.

Monitoring the proper and timely depositing of participants’ contributions to their retirement accounts also remains essential for plan sponsors. Noting that missing and late contributions is “an area the department regularly audits,” Plan Sponsor points out that EBSA “typically confirms contributions to tie out or reconcile (and where a breach occurs, confirm there was timely remediation). The department also looks to confirm that participant loan repayments are paid into the plan on time.” 

To avoid problems with missing and late contributions, retirement plan sponsors must  periodically ensure that “participant contributions go into the plan (in the first place, and on time),” and document their related actions, remembering: “Participant contributions are treated as plan assets and, therefore, must be deposited into the plan as of the date they can reasonably be segregated from the employer’s general assets.”

Oversight of Cybersecurity Protocols

Given that EBSA has named cybersecurity its number one enforcement priority, it’s clearly essential for retirement plan sponsors to pay more attention to mitigating  cyber threats to plan assets and data. This includes diligent oversight of all third party security protocols. 

Plan sponsors should take the time to fully understand and act on the cybersecurity guidance from EBSA, which has these three parts: 

1. Best practices for plan sponsors,
2. Strong security protocols for service providers, 
3. Online security tips 

For a complete overview of EBSA’s enforcement work, including the ERISA Civil Violations and Criminal Investigation Provisions that all plan sponsors should be aware of, visit EBSA Enforcement. Assistant Secretary for Employee Benefits Security, Daniel Aronowitz has emphasized: “We are committed to conducting our investigations in a timely and fair manner….We urge plans and service providers under review to respond promptly to our requests for information and findings, which will aid us in resolving issues efficiently and effectively.” 

Reducing The Risks of ERISA Plan Sponsorship

Retirement plan sponsors can be held personally liable for errors or alleged oversights  in how the plan is run, and that liability cannot be eliminated, even through contracting with third party service providers. Under ERISA standards, examples of plan sponsor oversights include failure to monitor service providers, or implement a cybersecurity response plan. Indeed, even a minor cyber incident can spiral into allegations of a fiduciary breach, with sponsors personally liable for the costs associated with defense and penalties. 

Only fiduciary liability insurance (FLI) protects plan sponsors personally, covering legal defense costs and penalties in the event of errors, oversights and allegations.

Colonial Surety Company makes it efficient and affordable for retirement plan sponsors to bundle three essential coverages into one seamless solution for ERISA compliance and protection:

1. ERISA Fidelity Bond: Fulfills your federal mandate to protect plan funds from dishonesty. (Colonial Surety is a direct, Treasury-Listed bond writer).
2. Fiduciary Liability Insurance (FLI): Shields your personal assets, covering up to $1,000,000 in legal defense costs and penalties for administrative errors or oversight omissions.
3. Complimentary Cyber Liability Insurance: Provides $50k of vital protection for the plan and company against regulatory actions following a data breach and directly addresses the DOL’s response plan recommendations.

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