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By Karen Gentry | MiBiz
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WEST MICHIGAN — HR professionals need to keep abreast of laws affecting pension and investment benefits, an often daunting task.

Heidi Lyon, partner with Warner Norcross & Judd spoke on “Tackling Administration Challenges” at a human resources seminar the firm held earlier this year in Grand Rapids. Lyon specializes in employee benefits and mainly in retirement plans and executive compensation. She covered topics that human resources leaders deal with on a day-to-day basis, including electronic disclosure and rules governing depositing contributions.

Whenever the economy is not doing well, according to Lyon, there’s more pressure on employers to deposit money into retirement plans and not hold onto it.

“Sometimes employers are not forwarding money to retirement plans and that’s against the law,” Lyon told MiBiz.

She said participant contributions become plan assets as soon as they can reasonably be segregated from the employer’s assets. Participant contributions include pre-tax, Roth and after-tax referrals, catch-up contributions, loan repayments and HSA pre-tax contributions.

Lyon outlined applicable time limits for depositing contributions. These include the 15th day of the following month for retirement contributions, and 90 days for health and welfare plans.

The Employee Retirement Income Security Act of 1974 and the IRS Code of 1986 impose disclosure obligations on benefit plans. The laws affect 401(k) plans or pensions.

“More rigid rules apply to 401(k)s because they involve employees’ money, whereas pensions are more often funded by employers,” Lyon said.

The IRS and the Department of Labor issued rules approving disclosure through an electronic medium that may include Internet, extranet, intranet, electronic posting sites, CDs, DVDs, automated voice recordings and wireless communication. She noted that the plan administrator must use measures reasonably likely to ensure actual receipt.

“The concern when it comes to retirement plans is making sure people understand what they’re getting and also making sure they actually receive the information,” said Lyon, noting some people don’t read mail or may delete email.

Employers must also disclose investment fees — the fees charged for managing employees’ money. Lyon said the employer and investment providers have to work together to disclose the fees. Employees need to understand and be comfortable with any risk associated with investments. In the past, a 10-percent return on investment may have been a 12-percent return before the fees were subtracted out. The hope is that the investment fee information will help people find better investments.

Craig Hossman, general counsel with the American Society of Pension Professionals & Actuaries, a national organization for career retirement plan professionals, said requirements for greater disclosure by the Department of Labor will become effective Jan. 1, 2012.

“The aim is greater transparency in fee disclosure. A lot of practices, commissions and fee sharing have not been disclosed as clearly as they should have been in the past,” Hossman said. “The DOL wants to make sure plan participants have a better idea of what’s going on.”

Hossman said employers need to be aware and if they’re using the services of an independent, third party, they need to get as much information as possible from these outside investment providers.

As part of the initiative for fee disclosure, ASPPA also wants the DOL to take a fresh look at the rules and consider making electronic disclosure the default means of reaching plan participants. DOL regulations are 6-7 years old and considered outdated by ASPPA and many others.

“Anyone who wants paper can request paper. We want to make electronic the default,” said Hossman, noting that many workers prefer electronic notices that can offer links, layering and video pop-ups for more sophisticated communications.

Lyon said the potential penalties and pitfalls of not adhering to electronic regulations include monetary penalties by DOL or IRS of up to $110 per day for the failure to make a required disclosure. Employers could face a participant lawsuit, and the plan’s qualification could be in jeopardy. If employees do not receive the intended information they may not understand benefits available and fail to take advantage of them to their detriment, employees may not appreciate the value of benefits provided and there could be increased costs associated with personnel explaining benefits.

Lyon said an individual employee can now sue an employer for losses experienced in a 401(k) with a recent U.S. Supreme Court ruling.

“Before it wasn’t possible for one individual to recover money. This has increased employers’ concerns,” Lyon said.

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TAGS:

• american society of pension professionals & actuaries
• craig hossman
• department of labor
• heidi lyon
• warner norcross & judd
• west michigan