Helping Plan Sponsors Steer Clear of Compliance Missteps

by: , Director, Head of DCIO Sales, New York Life Investments

Many larger plan sponsors engage a third-party administrator (TPA) or recordkeeper to help them administer their plan in compliance with the tax rules and the plan administrator responsibilities outlined in ERISA. But, as an advisor, who may have smaller plan sponsor clients, you can provide significant benefits if you know common missteps, and how to correct and prevent them.

As an advisor for smaller plans, your ongoing support to promote plan compliance can include:

  • Education about the plan sponsor administering a plan versus the services that can be provided by a third-party administrator or recordkeeper
  • Helping build due diligence procedures for selecting and monitoring plan investments, selecting service providers, and benchmarking plan fees
  • Discussing internal controls that will help identify and correct plan missteps
  • Introducing resources like the IRS 401(k) Plan Checklist
  • Reviewing investment metrics that may point to compliance concerns and facilitate a meeting with the third-party administrator
  • Educate plan sponsors about common mistakes discovered during DOL and IRS examinations
  • Identifying potential corrections service providers (e.g., ERISA attorney, third-party administrator) if plan errors occur

The plan sponsor’s failure to maintain plan compliance may result in the need to self-correct, if available, or worse, such as the discovery of an error on an audit or participant lawsuits.

Plan participants and other plan fiduciaries have the right to initiate lawsuits to correct fiduciary wrongdoing such as late deposits, failing to review and monitor service provider fees, late participant fee disclosures, payment of excessive investment fees, and filing a late or inaccurate Form 5500. Under ERISA, fiduciaries are personally liable for plan losses caused by a breach of their fiduciary responsibilities. The DOL also has authority to assess penalties and initiate lawsuits. Prohibited transaction penalties under ERISA and excise taxes apply. Plan sponsors may be required to make additional corrective contributions or distribute excess contributions to correct certain plan errors, such as not automatically enrolling eligible employees, failure to make deferrals based on an employee’s election or not allowing employees to make a salary deferral election, not distributing annual RMD payments when participants reach age 70½ or die, or applying an incorrect definition of compensation when calculating deferrals or employer contributions. A plan may be disqualified if there is substantial non-compliance with the qualification requirements set forth in the Internal Revenue Code.

Building a solid foundation for plan operations and monitoring plan activity are key to operating a plan that is in compliance. The IRS provides examples of internal control procedures on its web site. These internal control procedures are designed to help plan sponsors identify and prevent compliance errors. Generally, when a misstep has occurred, a plan sponsor must restore the plan and the participants (and beneficiaries) to the condition that would have been, had the error not occurred. Often, this means that the plan sponsor will need to make an additional contribution (including earnings) to the plan to correct the error or distribute excesses. The Department of Labor (DOL) states that procedural due diligence is key to meeting ERISA’s high standards of fiduciary conduct, including following a prudent decision-making process regarding plan investments and plan administration. Both the DOL and the IRS provide compliance tools and corrections programs to help plan sponsors identify and voluntarily correct plan compliance errors. The best time to review compliance procedures and discuss corrections is before a plan audit.

Even with support, compliance missteps frequently occur. But, they are preventable. As an advisor to retirement plans, it is worth your time to help plan sponsors avoid mistakes and alleviate exposure associated with errors and missteps.

This article is for educational purposes only and may not be redistributed by the recipient without prior written consent from New York Life Investment Management LLC. This communication is not intended to be an offer or solicitation of investment advisory services or products.

Neither New York Life nor its agents or affiliates provide tax, legal, investment, or accounting advice. Plan sponsors should speak to their own tax, legal, or investment advisor or accounting professional regarding their specific situation.

The information contained herein is general in nature and is provided solely for educational and informational purposes.

All investments are subject to market risk, including possible loss of principal. Diversification cannot assure a profit or protect against loss in a declining market.

Opinions expressed are current opinions as of the date appearing in this material only. The information and opinions contained herein are for general information use only. MainStay Investments does not guarantee their accuracy or completeness, nor does MainStay Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC

Prepared for an Institutional Audience.


Dana Hartwell, AIF®

Director, Head of DCIO Sales, New York Life Investments

Dana Hartwell is head of DCIO Sales. He joined New York Life Investment’s Institutional channel in 2015. Previously, Dana’s experience includes Hartford Funds, Natixis Global Asset Management, Fidelity Investments, and Charles Schwab & Co.

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