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Retirement News for Employers - Spring 2011 - Desk Side Chat…With Monika Templeman

Requesting, Reading and Monitoring Service Provider Reports

In each issue, Monika Templeman, Director of EP Examinations, responds to questions and offers insights on retirement plan topics uncovered during audits. You may provide feedback or suggest future topics for discussion by emailing her at:

Monika, in your presentations you mention that plan sponsors are responsible for operating their plan according to the plan’s terms. Does the plan’s service provider have any responsibility?

The plan sponsor/employer is ultimately responsible for ensuring the plan complies with the law in both form and operation. Accordingly, the plan sponsor should be in frequent communication with the plan’s service provider to ensure that all relevant data is provided timely and accurately. Also, it is critical to review the plan document annually to ensure the plan is operating according to its terms, and the plan sponsor should make the service provider and other relevant parties aware of any changes to the plan right away. It’s important to develop a communication mechanism that meets the needs of each party. It’s also important for the service provider to timely communicate with the plan sponsor to confirm the data is current, accurate and complete.

What does the employer need to provide to the service provider?

The employer needs to give the service provider accurate information regarding the retirement plan. It’s important to share any changes made by plan amendments or restatements. For example, if the plan’s definition of compensation is changed, the employer should communicate this amendment to the service provider and the people determining deferral amounts, performing nondiscrimination tests or allocating contributions. The employer also needs to provide the payroll information that relates to the compensation definitions in the plan document. The service provider can’t deliver the correct reports if they don’t have accurate participant compensation amounts. Using incorrect compensation for a participant can affect many plan operations and correcting these errors can be costly.

What are some reports plan sponsors may receive and how could they be used?

The service provider and employer should meet and discuss the reports needed for the plan. I’ll mention a few examples of reports the service provider may deliver. The plan sponsor should communicate with the service provider to discuss these and other reports.

Contributions. Plan sponsors should have procedures in place to spot check plan provisions in operation, such as confirming that compensation and deferral limits are not exceeded.

Participant loans. This report shows outstanding participant loans and whether loan payments are current and lists loans in default. The plan sponsor would have to take action on any loans in default. The employer should also spot check new loans to ensure the participant’s account balance was adequate to support the loan and the payroll deduction repayments commenced timely.

Hardship withdrawals. Employers should use this report to verify they have the necessary documentation to support the withdrawals in the plan records. Sometimes the service provider handles the hardship withdrawals. In these situations, the plan sponsor should periodically ask the service provider for copies of the hardship withdrawal documentation. The plan sponsor should also use this report to monitor payroll systems to ensure the employee who took a hardship withdrawal doesn’t make elective deferrals for six months.

Required minimum distributions. Employers should receive a report from their service provider indicating the participants approaching their required beginning date for commencement of required minimum distributions.

What about updates to the plan document – what, if anything, does the plan sponsor need to do?

I would suggest the plan sponsor establish a practice of contacting their plan document provider to determine if any plan amendments are required. This contact should take place 2-3 months before the end of the plan year. To avoid mistakes, make sure the plan document and Summary Plan Description match.

What should plan sponsors do if they find an error?

Plan sponsors should alert their service provider of the error and may be able to use the Employee Plans Compliance Resolution System (EPCRS) to correct the error.

Page Last Reviewed or Updated: 05-Mar-2014