Let the Pros Handle Your Pension Plan
If managing your company’s pension plan is just one of your many responsibilities, you are asking for trouble.
Meeting all the rules and regulations enforced by the Department of Labor and the Internal Revenue Service can be a full-time job. And right now, these federal agencies are actively pursuing small-business owners whose pension plans violate federal laws aimed at protecting employee funds.
The Department of Labor, which is responsible for enforcing the federal Employee Retirement Income Security Act, or ERISA, recently added 100 people to its enforcement unit, bringing the total to 400, according to David Ball, assistant Secretary of Labor.
“Enforcement has never been more vigorous than it is today,” Ball said.
Criminal indictments and civil penalties against small-business pension plans are on the increase. In fact, Ball said, many small-business owners who purchased annuities from Executive Life Insurance Co. are in trouble for jeopardizing their employees’ financial security.
Although ignorance of the law is no excuse for violations, the Labor Department has a voluntary compliance program that allows business owners to make restitution to their plans and straighten up their act without harsh penalties.
“The cheapest insurance policy you can buy is to use professional help in the administration of your plan,” Ball said.
Millions of American workers have no pension plan. One reason is that many smaller companies have neither the time nor the money to create them. In April, the Labor Department unveiled a proposal to set up a new kind of portable, individual retirement account for workers. This initiative is designed to help small-business owners provide coverage to millions more employees with a minimum of paperwork, Ball said.
No matter what kind of pension benefits you offer, if you act as the plan’s trustee, you are legally and financially responsible for the money and everything that happens to it. Every plan must have written investment objectives that detail its goals and objectives, which are required in addition to the plan document itself. The plan administrator must also monitor performance of the plan and its investments based on the objectives.
The regulations also require a trustee to thoroughly investigate the qualifications of any investment management firm that it hires, according to Robert DiMeo, a financial account executive for Kidder, Peabody & Co. in Chicago.
DiMeo recently fine-tuned and brought into compliance a profit-sharing plan operated by the architectural firm O’Donnell, Wicklund, Pigozzi & Peterson in Deerfield, Ill. Kathy Jessen, the firm’s controller, retained DiMeo after reading some articles that alerted her to potential problems with its 20-year-old profit-sharing plan.
“I became aware of certain regulations and saw we had a potential problem with the type of investment funds we were offering to employees,” Jessen said. The firm, which designs schools and hospitals, has 155 employees.
Although she was familiar with how the plan worked, Jessen said she did not feel qualified to make the changes. “Bob (DiMeo) helped develop our fund management policies and found an appropriate third investment fund,” Jessen said. “He also suggested three qualified investment managers and helped us interview all three before we hired one.”
David West, a specialist in employee benefits and a partner at the law firm Gibson, Dunn & Crutcher in Los Angeles, said ERISA requires that plan trustees must not only act in a prudent manner but also manage the fund as well as an expert would.
“A well-meaning heart just doesn’t count,” West said. He said any business owner who taps into the pension fund is asking for big trouble, including stiff penalties from the Department of Labor and the IRS.
“When a business owner gets into a pinch, he or she may think, ‘I’ll just borrow a little money from the plan and put it back,’ ” West said. “My suggestion is don’t touch the money until your advisers tell you it is legal to do so.”
The IRS works closely with the Labor Department on pension fund enforcement issues. In fact, the pension plan reports that you file with the IRS are dutifully logged into the Department of Labor’s database, Ball said. He said violations not picked up from the computerized database are often red-flagged during manual audits performed in regional offices across the country.
Ball’s advice to business owners tempted to borrow money from their pension funds when times are tough: “Get professional help and keep your hand out of the cookie jar.”
