Employee Plans Compliance Unit (EPCU) - Completed Projects - Projects with Summary Reports - Virgin Islands Project
The Employee Plans Compliance Unit (EPCU) designed the Virgin Islands Project (Project) to determine the level of compliance regarding Virgin Island plan sponsors on certain issues discovered during limited examinations of Virgin Island pension plans. The Project continues EPCUs focus on international issues involving pension plans maintained in U.S. Territories.
Beginning in October 2013, we sent contact letters to Form 5500 series filers. The contact letter and List of Required Information attachment contained introductory materials about the compliance check, identifying information regarding the plan sponsor, a brief explanation of the reason for the compliance check and questions for the sponsor to answer.
We wanted to learn whether those plan sponsors were:
- securing fidelity bonds in the proper amount, and
- timely submitting plan contributions to the trust.
The responses showed that mostly all of the sponsors in the sample were compliant with their fidelity bonding and contribution deposit requirements.
The EPCU secured correction for three sponsors that did not have fidelity bonds or did not have them in a sufficient amount. There were also a few cases with late deposits on small contribution amounts.
Plan sponsors are required to secure fidelity bonds to protect the plan against loss due to acts of fraud or dishonesty on the part of persons who act directly or through connivance with others. A fidelity bond is generally required for every fiduciary of an employee benefit plan and every person who handles funds or other property.
Each such person meeting the bonding requirement is required to secure a bond for at least 10% of the amount of funds handled during a plan year subject to a $1,000 per plan minimum and a $500,000 maximum. Effective for plan years beginning on or after January 1, 2008, however, the maximum required bond amount is $1,000,000 for plan officials of plans that hold employer securities.
Timely Submission of Contributions
Plan sponsors are required to segregate employee contributions and salary deferrals (contributions) from the company’s general funds. The employer must deposit salary deferral contributions into the trust as soon as administratively possible.
If the plan document contains language regarding the timing of deferral deposits, an employer may correct failures to follow the plan document terms under the Employee Plans Compliance Resolution System (EPCRS). However, this type of mistake can also lead to prohibited transactions between a plan and a disqualified person resulting in excise tax. Since sponsors can’t correct a prohibited transaction through EPCRS, they should review the Department of Labor Voluntary Fiduciary Correction Program (VFCP) that may help resolve the prohibited transaction issues.