Every year, retirement plan sponsors must review whether their plan’s fidelity bond is adequate. Here’s a summary of the fidelity bond rules required by the Department of Labor (DOL).
To protect employee benefit plans from fraud or dishonesty on the part of those handling retirement plan funds, ERISA generally requires that every fiduciary of the plan, and everyone who handles the plan’s funds, must be bonded. This includes all “plan officials” who have:
- Physical contact with cash, checks or other Plan property.
- Power to transfer or negotiate Plan property for a price.
- Power to disburse funds, sign checks or produce negotiable
instruments from the Plan assets.
- Decision making authority over any individual described above.
The fidelity bond must be at no less than 10% of plan assets. There’s a minimum of $1,000 and a maximum of $500,000. But there are also some important exceptions:
- Maximum Amount: For retirement plans that hold employer stock or other employer securities, the maximum bond amount is increased to $1 million. (A retirement plan is not generally considered to hold employer stock or other employer securities if these assets are part of a broadly diversified group of assets, like mutual funds.) This provision is effective for plan years beginning on and after January 1, 2007.
- Non-Qualifying Assets: If more than 5% of the plan assets are in limited partnerships, artwork, collectibles, mortgages, real estate or securities of “closely-held” companies and are held outside of regulated institutions (a bank, an insurance company, a registered broker-dealer or other organization authorized to act as trustee for individual retirement accounts under Internal Revenue Code Section 408), plan sponsors need to either:
- ensure the bond amount equals 100% of the value of these “non-qualified” assets, or
- arrange for an annual full-scope audit, where the CPA physically confirms the existence of the assets at the start and end of the plan year.
Consequences of Not Maintaining the Fidelity Bond
Serious consequences result from not purchasing and maintaining a sufficient ERISA fidelity bond.
- It can be a red flag to the DOL that they need to take a closer look at the plan.
- A serious underwriting risk may arise if non-qualified assets aren’t properly listed on the bond application because non-qualifying assets carry a higher level of risk for loss. If they are not listed on the bond, the underwriter would have cause to deny coverage if there was a loss due to misuse or misappropriation by a plan fiduciary. Under those circumstances, the loss may be denied and the trustees could be liable for the losses to the plan.
For a check on your plan’s Fidelity Bond status, get in touch with your PASI pension consultant.
As a supplement to the services we provide our clients, we have developed a Microsoft Access based solution to facilitate the processing of employer contributions each pay-period. Each Contribution Wizard is completely customized for your Plan. Is your payroll company already performing these calculations? The Contribution Wizard will:
- Calculate earliest possible eligibility dates based on your plan’s provisions.
- Provide you with 3 months of notice regarding Employees who might need to be enrolled.
- Facilitate eligibility reviews by isolating those participants who need to be reviewed (i.e., those Participants whose earliest eligibility date is just before the current pay-date).
- Facilitate eligibility determinations by automatically calculating hours worked in an employee’s first months of employment.
- Create a detailed contribution review report designed specifically to facilitate review of calculations.
- Export contributions to a file “ready for import” to custodian’s web-site.
This Contribution Wizard will save you time, make plan administration easier, and improve accuracy! Click here for a more detailed description.
The Supreme Court’s decision to strike down the Defense of Marriage Act (DOMA) has a significant impact on retirement plans, particularly in those states that either recognize same sex marriages directly, or recognize such marriages indirectly through reciprocity with another state. These changes are effective immediately; however, we are anticipating substantial federal guidance regarding the details of implementing this significant change. The areas of plan administration most affected by this change, include the following (among others).
Beneficiary Designations. Same sex spouses now must be the primary beneficiary unless they provide witnessed/notarized consent. Guidance should address the status of any existing beneficiary designations made without the consent of the same-sex spouse.
Hardship distributions. Many of the pre-defined “hardship” expenses provide access to funds on account of expenses related to “spouses”—same sex spouses will now enjoy access to those benefits as a spouse. It should be noted that a Participant’s primary beneficiary is generally treated as though he or she were the Participant’s spouse for these purposes, which provides an effective (although less than perfect) work-around for same-sex couples.
Spousal Consent to Lump-Sum Distributions. A small number of 401(k) plans require spousal consent before a distribution can be paid as a single lump-sum (as opposed to a life annuity). The approval of a same-sex spouse would now be required to obtain this distribution. In such plans, spousal consent would also be required with respect to loans and in-service distributions (including hardship distributions).
One of the primary justifications for the Supreme Court’s decision was that it is the states’ role to define marriage. Because a civil union is defined as separate and distinct from marriage in the law of certain states, same-sex couples engaged in a civil union are not affected by these developments.
Please get in touch with your PASI pension consultant with any concerns you may have regarding these developments. You can read more about how ASPPA views the affects of this new legislation here.
PASI is pleased to celebrate the following employee anniversaries, from the beginning of the year through this September:
Patricia Nelson – 15 years in February
Janice Gothers – 8 years in January
Anna-Marie Brown – 6 years in April
Karen Goodnight – 6 years in July
Jack Hurley – 5 years in January
Marie Harabin – 5 years in September
We also welcome a new employee, Muriel Vaughan-Williams, who will be doing administrative assistance and compliance work.
Since 1928, Victor Advertising Service has been a family-run Connecticut business that’s been handed from father (Victor Reemsnyder) to son (Harding Reemsnyder), then bought by another father (Jerry Margolis) who brought in his son (Scott Margolis). For 85 years now, the Middletown-based company has been making promotional products for businesses across CT and the US. Jerry Margolis acquired Victor Advertising in 1993.
“We brought PASI in as a third-party administrator for our 401k plan about six years ago. My dad was skeptical at first, but he’s really pleased. They’re doing a very steady job for us. They really are consistent, constantly keeping us aware of any changes we need to know about,” says Scott. “We have 7 employees. We’re an LLC, our plan is really straightforward, and we like that there’s never any surprises with PASI.”
When Scott’s father bought Victor Advertising, it was about a $300,000 company. Now it’s a $3 million company. “We have access to over 5,000 different suppliers that offer over 500,000 different products that can adorn a company logo. Our sales volume puts us in the top 10% nationally in an $18 billion industry,” explains Scott.
Victor Advertising serves mostly medium-sized businesses with a main focus on Connecticut. “We can do business anywhere as a distributor, and can send samples all over the country. We have a very diverse client base ranging from educational institutions to finance to retailers. I think our buying power plus our local feel and personal service sets us apart. Our order experience is not like any other company,” Scott says.
“Three of our employees have been here 10 years or more. I think that speaks to our positive work environment,” Scott thinks. What else sets Victor Advertising apart? “Lots of people out there do printing and ‘also do promotions’. We specialize just in promotions. What we do best is taking a client’s need and getting them something special that sets them apart,” Scott says.
As a professional service firm, we at PASI really appreciate that Victor Advertising takes a consultative approach to their marketing. They like to have interaction with their customers to make sure they’re getting the best promotion for their needs. “You get a professional package from us, product presentations, proposals, quotes, signing off on the final order, tracking information, and service followups. We’re in constant touch throughout the order process,” Scott elaborates.
There’s also a lot of attention to quality. “We really vet our suppliers. We’re not looking to sell ‘the cheapest pen out there’ – the pen’s gotta work!” Scott laughs. “We like to use suppliers that are certified through the Quality Certification Alliance. It’s a very expensive accreditation to go through, but it let’s us know that our suppliers are adhering to the best manufacturing standards and that their products are tested and safe,” explains Scott.
As a service firm that’s also dedicated to quality and attention to detail, we applaud Victor Advertising Service’s focus on great customer service. You can reach Scott Margolis at 860-632-9400 or at email@example.com.
Upcoming Fee Disclosure Deadlines
July 31, 2013
- Form 5500 Due Date
(not on extension)