Over the past several years, the administration of multiemployer benefit plans has become more complex. Changing regulations along with modifications introduced to ease pandemic-related financial stresses requires plan sponsors and their trustees to be especially diligent in their plans’ administration. The Internal Revenue Service (IRS) created a list of the top ten issues facing multiemployer plan sponsors. Being aware of them and taking measures to reduce potential exposures is critical to compliance and protecting the interests of plan members. Here are the IRS’s findings:
- Not making required actuarial adjustments for benefit payments in a defined pension plan that begin after the plan’s normal retirement date in accordance with the Internal Revenue Code (IRC) Section 411 (b)(1)(H). This often occurs in plans where the normal retirement age is below 65 and plan participants are not aware that they can receive these benefits at an earlier age or decide to delay receiving them to coincide with the receiving Social Security benefits. Plan administrators should take measures to ensure that all missed payments are restored and are increased by the appropriate interest factor.
- Required minimum distributions are not being met for terminated vested participants who have not yet applied for their benefits. By failing to make the required minimum distributions to participants by April 1 of the calendar year following the later of the calendar year the participant turns 72 or 70-1/2 if born prior to July 1, 1949, or the calendar year when the participant retires, the plan sponsor is in violation of IRC Section 401(a)(9). Plan sponsors must be careful to avoid this violation.
- Not searching for terminated vested participants in cases where the participants do not file for benefits in a timely manner. These “missing” participants should be searched for via public records directories or alternative contact information, if necessary, using a professional locator service, credit reporting agency or proprietary internet search tool. All attempts should be made via certified mail, email, etc.
- Making benefit calculation, service credit and reduction factor errors resulting due to misapplication of benefit provisions, inaccurate interpretation of the law and/or using incorrect participant data.
- Noncompliant plan language and/or a conflict between the plan document and other collectively bargained, joinder or participation agreements including multiemployer plans that improperly rely on pre-approved documents. These errors are in violation of IRC Section 401(a), IRS regulations and Revenue Procedure 2017-41, Section 6.03(1), respectively.
- Failing to perform required nondiscrimination tests as required by IRC Section 401(k). Believing the test is not required, many plan administrators do not test all eligible bargaining unit employees for nondiscrimination applying the Actual Deferral Percentage (ADP) test. If there is even one highly compensated employee who deferred into the multiemployer 401(k) plan in the bargaining unit, the plan is required to perform nondiscrimination testing for all eligible bargaining unit employee participants in the plan. Another related error is failing to separately test non-bargaining unit groups that are eligible to participate in the multiemployer IRC Section 401(k) plan as a mandatorily disaggregated group.
- Not following or failing to have a participation agreement for each employer as it pertains to non-collectively bargained employees working for a union or trust fund that is participating in the plan, but which have not secure signed participation agreements. If the plan’s eligibility and participant requirements are not properly defined, the plan is at risk for not being regarded as a definite written program under the law.
- Failing to meet Treasury Regulations Section 1.401(b)(1)(i) definitely determinable benefit rules when credited service and contributions are dependent on employer contributions being made. This is a common occurrence in plans requiring participating employers to make payment before crediting a participant for covered service associated with the employer’s contribution. To avoid this error, plan administrators should be certain that the crediting of participant accruals and services is not linked to the related employer contributions receipt.
- Cash out/ forfeitures from lost participant, applying the wrong vesting schedules, or making errors in vesting percentages all of which violated IRC Section 411.
- Misusing or diverting pension funds such as plan trustees using trust assets for personal use, making plan loans to plan trustees using an interest rate less than the fair market rate, having the trust sell an asset to a “disqualified person” as noted within IRC Section 4975(e)(2) for less than the fair market and failing to properly allocate expenses between different trusts.
To avoid errors such as these and to ensure a multiemployer plan is in full compliance with the law, it is advisable that extra caution be applied or the plan sponsors should consider outsourcing the plan’s administration to a qualified third party administrator, like Amalgamated Employee Benefits Administrators.