| Severity | Category | Risk Factor |
 | No 404(c) election combined with participant-directed accounts | Per plan filing this plan had a combination of 2 factors that expose the plan’s sponsor and fiduciaries to personal liability. Per the plan filing the plan (1) did not indicate it had a 404(c) election in place and (2) plan members had participant-directed accounts. Under these circumstances ERISA regulations state that plan fiduciaries are responsible for losses incurred by plan participants in their investment accounts. The combination of these two factors is extremely dangerous and should be corrected as soon as possible. |
 | Schedule P issues | Per plan filing the plan indicated that the Trustee and Custodian have failed to furnish plan participants with all required trust financial information. ERISA regulations require that this information is to be provided to all plan participants on an annual basis. This would be a failure to comply with ERISA regulations. |
| Schedule P issues | Per plan filing the plan's trustee failed to file Schedule P. The 6-year statute of limitations for exempt trusts such as this one does not begin to run until this Schedule is completed and filed. Failure to file Schedule P exposes a trustee to continuous liability for trust transactions. Schedule P also includes a key disclosure statement that trust financial information was provided to the plan as required by ERISA regulations. It is in the best interests of a plan trustee to ensure that this document is filed. |
| Schedule P issues | Per plan filing the plan's trustee failed to file Schedule P. As a result it cannot be determined if trust financial information, required to be reported under ERISA regulations was furnished to the plan. As a result it cannot be determined if the plan is in compliance with ERISA regulations. |
 | SSA and separated participant issues | Per plan filing Schedule SSA was required but not filed. This is an indication that the plan document may be improperly prepared. Schedule SSA is important to former plan members no longer employed or separated from service with the sponsor. The information reported on Schedule SSA is forwarded to the Social Security Administration, which in turn provides it to plan participants when they file for Social Security benefits. If the form is not filed former plan members could lose their benefits. Any separated employee should make sure this form is filed annually. It's also in the best interest of plan sponsors to see that this form is prepared and attached to annual filings. |
| No 404(c) election | Per plan filing the plan did not make a 404(c) election and plan members POSSIBLY had participant directed accounts. Under certain circumstances plan members may seek reimbursement and plan fiduciaries may be held personally liable for losses incurred in member's accounts. Plan members and plan sponsors should seek professional counsel where these circumstances exist. |
| Default or party in interest transaction | Per plan filing the plan engaged in a nonexempt transaction with a party-in-interest. This suggests the improper use of plan assets and indicates there was self-dealing between the plan and either the plan sponsor, an officer of the plan sponsor or a plan fiduciary. This is a violation of ERISA regulations and could negatively impact a participant's account balance. An inquiry should be made as to the nature of the transaction and investigated by plan participants. |
| Fraud loss reported | Per plan filing the plan had a loss that was the result of fraud or dishonesty. This may be the result of poor plan management or a lack of adequate control over plan assets. A serious inquiry should be made into the nature of the loss. Lost assets will negatively affect participant account balances. |
| 404(c) Election | Per plan filing the plan has made a 404(c) election. 404(c) compliance is an ongoing process that plan fiduciaries must maintain. It's important to ensure that all compliance issues are being diligently reviewed on a recurring basis. Per Department of Labor warnings, the failure to adhere to section 404(c) requirements are likely to result in severe liability for plan fiduciaries. |
| CPA issues | Per plan filing the plan's CPA issued an "Adverse" opinion. This may indicate a significant problem with the plan. CPA’s issue adverse opinions when the financial statements do not fairly present in all material respects, the financial status of the plan. The reason could be anything from poor plan management to missing plan assets. Plan participants should request a copy of the CPA's report from the plan administrator and make an immediate inquiry as to why the CPA issued an Adverse Opinion. |
| No 404(c) election | Per plan filing this plan did not indicate it had made a 404(c) election. ERISA code section 404(c) provides an exception to fiduciary liability established in ERISA code section 404(a). The exception in 404(c) allows a fiduciary to transfer responsibility for investment losses to plan participants. The 404(c) election provides a significant benefit to plan sponsors and plan fiduciaries. |
 | Asset valuation issues | Per plan filing the plan held assets whose current value was neither readily determinable on an established market nor set by an independent third-party appraiser. This could indicate that assets are not properly valued and the plan is not in compliance with ERISA regulations. ERISA regulations require that all plan assets be properly valued and in certain circumstances require annual appraisal. Failure to properly value plan assets on an annual basis may adversely affect the value of a participant's account. |
| Asset valuation issues | Per plan filing the plan holds Employer Real Estate. These assets may be hard to value, especially at time of retirement or termination. There is also the potential for a conflict of interest. ERISA regulations require that all plan assets be properly valued and in certain circumstances require annual appraisal. Failure to properly value plan assets on an annual basis may adversely affect the value of a participant's account. |
| Employer securities | Per plan filing the plan holds Employer Securities. Unless publicly traded these assets are hard to value. Employer securities may place participants at greater risk with the potential for greater reward than exchange traded securities. Unless publicly traded Employer Securities require annual appraisal. ERISA regulations require that all plan assets be properly valued. Failure to properly value plan assets on an annual basis may adversely affect the value of a participant's account. |
| Asset valuation issues | Per plan filing the plan holds Partnership or Joint Venture assets. These types of assets are hard to value, especially at time of retirement or termination. ERISA regulations require that all plan assets be properly valued and in certain circumstances require annual appraisal. Failure to properly value plan assets on an annual basis may adversely affect the value of a participant's account. |
| Asset valuation issues | Per plan filing the plan holds Real Estate other than employer property. These assets are hard to value, especially at time of retirement or termination. ERISA regulations require that all plan assets be properly valued and in certain circumstances require annual appraisal. Failure to properly value plan assets on an annual basis may adversely affect the value of a participant's account. |
| Asset valuation issues | Per plan filing the plan holds Tangible Personal Property likely to be collectables. These assets may be exceptionally hard to value especially at time of retirement or termination. In addition these assets require an annual appraisal by an expert. ERISA regulations require that all plan assets be properly valued. Failure to properly value plan assets on an annual basis may adversely affect the value of a participant's account. |
| Asset valuation issues | Per plan filing the plan received non-cash contributions whose value was either not readily determinable on an established market nor set by an independent third party appraiser. This could indicate that assets are not properly valued and the plan is not in compliance with ERISA regulations. ERISA regulations require that all plan assets be properly valued and in certain circumstances require annual appraisal. Failure to properly value plan assets on an annual basis may adversely affect the value of a participant's account. |
| Asset valuation issues | Plan holds other Real Estate assets. These assets may be hard to value, especially at time of retirement or termination. ERISA regulations require that all plan assets be properly valued and in certain circumstances require annual appraisal. Failure to properly value plan assets on an annual basis may adversely affect the value of a participant's account. |
 | Compliance issues | Per plan filing the plan at one time held 20% or more of its assets in a single security debt, mortgage, parcel of real estate, or partnership/joint venture interest. The plan may have an excess concentration of assets in a single investment or may lack improper asset diversification. These assets may also require an appraisal or independent valuation. Failure to properly value plan assets on an annual basis may adversely affect the value of a participant's account. The plan may also need to review its investment policy and procedures. |
| CPA issues | Per plan filing the plan does not have a CPA opinion where it appears one is required. This may indicate the plan document is improperly prepared. If true the filing is subject to rejection. This would also be a violation of ERISA regulations and could potentially jeopardize the plan's tax-exempt status. The plan sponsor may be unaware of the need for a CPA opinion. Both Sponsor and Participants should make an inquiry of the plan's administrator as to the need for a CPA opinion. |
| CPA issues | Per plan filing the plan does not list the name of the CPA who issued an opinion. This may indicate the plan document is improperly prepared. Form instructions require that if an accountant's opinion is attached the name and federal ID number of the accounting firm be entered. Failure to enter the name of the firm indicates that an opinion was not attached. Non-submittal of an opinion is allowed only under limited circumstances. Participants should make an inquiry of the plan's administrator as to the name of the Plans CPA and nature of the discrepancy. |
| Compliance issues | Per plan filing the plan had a transaction or series of transactions in excess of 5% of the current value of plan assets. The plan may have an excess concentration of assets in a single investment or may lack proper asset allocation. The plan may need to review its investment policy and procedures. Participants should make an inquiry of the plan administrator. |
| 404(c) Possible issues related to separate personal accounts | Per plan filing the plan has a code section 414(k) arrangement. This feature enables participants to make after-tax contributions which are maintained in separate accounts of the participant. These arrangements sometimes include defined contribution plan features such as employer matching on a full or partial basis. Participants and sponsors should be aware that the provisions of code section 404(c) might apply to these accounts as well. Plan members should be advised of the issues surrounding ERISA section 404(c). |
| SSA and separated participant issues | Per plan filing the plan has participants who are separated from service or receiving benefits. Plan sponsors in this situation should consider the cost and liability associated with retaining former employee accounts. |
| 404(c) Possible issues related to separate personal accounts | Per plan filing the plan includes a 401(m) arrangement. This feature enables plan members to make after-tax contributions to separate personal accounts and typically includes a partial or full matching contribution by the employer. The arrangement is subject to complex regulations for discrimination testing. The regulations associated with code section 404(c) may apply to these accounts as well. Plan members should be advised of the issues surrounding ERISA section 404(c). |
| ESOP and asset valuation issues | Per plan filing the plan is a Leveraged ESOP (Employee Stock Ownership Plan). ESOP's by their nature are inherently risky. Leveraging these plans through debt obligations make them even riskier. Unless publicly traded ESOP assets are extremely hard to value. These securities place participants at greater risk with the potential for greater reward than exchange traded securities. ERISA regulations require that plan assets whose current value is not readily determinable nor traded on an established market must be set annually by an independent third-party appraiser. Failure to properly value plan assets may adversely affect the value of a participant's account. Participants should ensure that an annual independent appraisal takes place. |
| ESOP and asset valuation issues | Per plan filing the plan is an ESOP (Employee Stock Ownership Plan). ESOP's by their nature are inherently risky. Unless publicly traded ESOP assets are extremely hard to value. These securities place participants at greater risk with the potential for greater reward than exchange traded securities. ERISA regulations require that plan assets whose current value is not readily determinable nor traded on an established market must be set annually by an independent third-party appraiser. Failure to properly value plan assets may adversely affect the value of a participant's account. Participants should ensure that an annual independent appraisal takes place. |
| ESOP and asset valuation issues | Per plan filing the plan is an S-Corp ESOP (Employee Stock Ownership Plan). ESOP's by their nature are inherently risky. Unless publicly traded ESOP assets are extremely hard to value. These securities place participants at greater risk with the potential for greater reward than exchange traded securities. ERISA regulations require that plan assets whose current value is not readily determinable nor traded on an established market, must be set annually by an independent third-party appraiser. Failure to properly value plan assets may adversely affect the value of a participant's account. Participants should ensure that an annual independent appraisal takes place. |
| CPA issues | Per plan filing the plan's CPA issued a "Disclaimer" Opinion. A “Disclaimer” opinion is issued when the independent CPA does not express an opinion on the financial statements of the trust because they have not performed an audit sufficient in scope to enable them to form an opinion on the financial statements. This may indicate there is a problem with the plan. The question is why didn’t the CPA issue an “unqualified opinion”? Plan participants should request a copy of the CPA's report from the plan administrator and make an immediate inquiry as to why the CPA issued the Disclaimer Opinion. |
| Filing errors | Per plan filing this plan did not indicate it was covered by a fidelity bond. If true, the plan may not be in compliance with ERISA regulations. ERISA rules state that all qualified retirement plans have a fidelity bond to cover at least 10% of the total value of plan assets calculated at the beginning of the plan year. Lack of any fidelity bond exposes plan fiduciaries to additional risks. |
| Filing errors | Per plan filing this plan may have an insufficient fidelity bond. If true, the plan may not be in compliance with ERISA rules and regulations. Lack of sufficient bond exposes plan fiduciaries to additional risks. |
| Compliance issues | Plan is not intended to qualify for exemption under IRS code sections 401, 403 or 408. This plan or entity is not intended to be exempt from tax. Its income is not tax-exempt. |
| Default or party in interest transaction | Schedule G is attached indicating the plan has either loans, leases or fixed income obligations in default or certain nonexempt transactions occurred with a disqualified person. This suggests poor management or the improper use of plan assets which could jeopardize the plan's tax-exempt status. A serious inquiry should be made of the plan administrator as to the nature of these items. Such transactions may have an adverse affect on the value of a participant's account. |
| Items of special interest | This plan was covered by PBGC and was terminated or closed out for PBGC purposes. PBGC coverage of a terminated plan usually indicates that the original sponsor was unable to satisfy pension obligations. |
 | Initial or final filing | Per plan filing a resolution to terminate the plan has been adopted. Numerous ERISA and Department of Labor regulations will need to be complied with before a final termination may be granted. Participants should investigate the establishment of any new plans by the same sponsor. |
| Default or party in interest transaction | Per plan filing plan loans or fixed income obligations were in default. This could indicate poor management of plan assets. A serious inquiry should be made of the plan's administrator as to the nature of these items. Such transactions may have an adverse affect on the value of a participant's account. |
| Compliance issues | Per plan filing the employer doesn't apply minimum coverage requirements on an employer-wide basis. ERISA rules provide regulations for compliance with minimum coverage requirements. Treasury regulations dictate that multi-employer plans and plans of controlled groups apply non-discriminatory coverage to all members of the controlled group. Members of this plan should determine that appropriate minimum coverage requirements were applied. |
| Compliance issues | Per plan filing the employer has more than one qualifying separate lines of business (QSLOBs). ERISA rules provide regulations that QSLOBs comply with minimum coverage requirements. Treasury regulations dictate the tests to be applied and coverage requirements for QSLOB members. Members of this plan should determine that appropriate minimum coverage requirements were applied. |
| Compliance issues | Per plan filing the employer indicated it failed to transmit participant contributions within prescribed time limits. The Department of Labor has provisions available to correct this problem. Failure to transmit participant contributions in a timely manner may indicate the improper withholding of participant funds. Plan members should pay particular attention to this issue. This can be the first indicator of a problem with plan management. |
| Participant-directed account feature | Per plan filing the plan has a "Total Participant-Directed Account" feature. Per ERISA regulations plan fiduciaries are responsible for participant-directed investments unless the plan has made a properly executed 404(c) election. Absent the 404(c) election, plan fiduciaries retain full responsibility for all investment losses including those directed by a plan participant. Plan members and plan sponsors should seek professional counsel where appropriate. |
| 401(k) feature | Per plan filing the plan has a 401(k) feature. 401(k) plans come with a multitude of regulations and administrative burdens. Numerous features, benefits and responsibilities can be transferred to plan participants or retained by the plan sponsor. The management of a company 401(k) plan should be delegated to knowledgeable professionals. These plans should be evaluated in conjunction with other risk factors such as 404(c) and participant direction of plan investments. |
| Participant-directed account feature | Per plan filing the plan has a Partial “Participant-Directed Account” feature. Per ERISA regulations plan fiduciaries are responsible for participant-directed investments unless the plan has made a properly executed 404(c) election. Absent the 404(c) election, plan fiduciaries retain full responsibility for all investment losses including those directed by a plan participant. Plan members and plan sponsors should seek professional counsel where appropriate. |
| SSA and separated participant issues | Per plan filing the plan has participants who are separated from service with deferred vested benefits and/or account balances. Plan sponsors should consider the cost and liability associated with retaining former employee accounts. Plan members who are no longer employed or separated from the plan sponsor should ensure that Schedule SSA has been included with the annual filing. The information reported on Schedule SSA is given to the Social Security Administration, which in turn provides it to plan participants when they file for Social Security benefits. |
| Default or party in interest transaction | Per plan filing the plan held leases which were either in default or uncollectible. This could indicate poor management of plan assets. A serious inquiry should be made of the plan administrator as to the nature of these items. Such transactions may have an adverse affect on the value of a participant's account. |
| Items of special interest | Per plan filing the plan is a Money Purchase Plan. Most plans of this type no longer serve any useful purpose. Sponsors can roll Money Purchase Plans into existing Defined Contribution Plans such as 401k’s and reduce their administrative costs. Combined plans may also help sponsors increase their contributions and tax benefits. Sponsors should consult with plan professionals to explore the benefits of combining Money Purchase with other plan types. |
| Compliance issues | Per plan filing the plan is a Non-US Plan maintained outside US for nonresident aliens. Various obscure rules and regulations pertain to such plans. These may be difficult plans to manage and administer. |
| Items of special interest | Per plan filing the plan is an Offset Plan and in some way related to another plan of the same sponsor. Offset plans are subject to all of the rules and regulations associated with qualified plans including 404(c) where applicable. |
| Compliance issues | Per plan filing the plan sponsor received services of leased employees. Plans with leased employees must satisfy coverage requirements under one of three testing options. Leased employees involve the application of numerous coverage tests and regulations. |
| Initial or final filing | Per plan filing this was the Final Report for this plan. Numerous filings were required by the Department of Labor prior to their granting a consent to terminate the plan. Participants should investigate the establishment of any new plan by the same sponsor. |
| Filing errors | Per the original plan filing the plan did not indicate its entity type. This may indicate the document was improperly prepared or not completed in its entirety. |
| SSA and separated participant issues | Plan filed Schedule SSA indicating there are former employees with deferred vested benefits. Plan sponsors should consider the administrative cost and liability associated with retaining former employee accounts. The information reported on Schedule SSA is forwarded to the Social Security Administration, which in turn provides it to plan participants when they file for Social Security benefits. |
| Items of Special Interest | Plan filing indicates the plan has a low participation rate. Low participation rates may indicate the need for better employee education as to benefits of saving for retirement. Fiduciaries have an obligation to educate participants as to the benefits of plan participation and the procedures necessary to initiate plan participation. |
 | Initial or final filing | Per plan filing a resolution to terminate the plan has been adopted. Numerous ERISA and Department of Labor regulations will need to be complied with before a final termination may be granted. Plan members should investigate the establishment of any new plans by the same sponsor. |
| Filing errors | Per plan filing an "Amended Report" was filed for this plan year. This indicates some error or oversight probably occurred with the document that was originally filed. Why was the original filing amended? Make inquiries of the plan administrator. |
| Compliance issues | Per plan filing plan is a member of a "Controlled Group". Various specialized rules and regulations apply to controlled groups including sections 414(b), (c) and (m). Plan members should be advised by their employers and plan fiduciaries as to their rights and minimum benefits coverage available to them under ERISA regulations. This can have a significant affect on a participant's account value. Make inquiries of the plan administrator. |
| Compliance issues | Per plan filing the plan contains an Age Weighted or New Comparability feature. These features enable certain participants to obtain a larger proportion of plan contributions based upon certain criteria set out in the plan document. These plans must comply with specific rules and regulations and annual tests must be met to ensure the plan does not discriminate against lower paid employees. |
| Small plan issues | Per plan filing the plan covers Self-Employed individuals. Special rules and regulations apply to single participant plans and plans covering self-employed individuals. Plan sponsors should be aware of these special provisions. |
| 404(c) Possible issues related to separate personal accounts | Per plan filing the plan has a code section 401(h) arrangement. Code section 401(h) relates to defined benefit plans that contain separate accounts to provide employee health benefits. |
| Items of special interest | Per plan filing the plan has an out-of-state insurance broker. An out-of-state broker may indicate a lack of familiarity with plan participants. |
| Compliance issues | Per plan filing the plan has employees benefiting from qualifying separate lines of business (QSLOBs). ERISA rules provide regulations that QSLOBs comply with minimum coverage requirements. Treasury regulations dictate the tests to be applied and coverage requirements for QSLOB members. Members of this plan should determine that appropriate minimum coverage requirements were applied. Make inquiries of the plan administrator. |
| Issues related to 403(b) plans | Per plan filing the plan is a 403(b)(1) arrangement. These plans are created for employees of section 501(c)(3) entities. These are tax-exempt organizations. It must be a non-forfeitable annuity contract. Additional contributions by the employee can be added to the annuity and excluded from income. It is unclear as to whether or not code section 404(c) regulations apply to these types of plans. |
| Issues related to 403(b) plans | Per plan filing the plan is a 403(b)(7) account. Regulations dictate that contributions must be held in a custodial account and must be invested in regulated investment company stock. It is unclear as to whether or not code section 404(c) regulations apply to these types of plans. |
| Compliance issues | Per plan filing the plan is a 408 account or annuity. These plans are controlled by a unique set of ERISA rules and regulations. Sponsor compliance with these rules and regulations is imperative to the plan maintaining tax-exempt status. |
| Defined benefit plan issues | Per plan filing the plan is a Cash Balance Plan. A “cash balance” plan provides a formula for computing benefits and goes by names such as personal account plan, pension equity plan, life cycle plan, cash account plan, etc. that rather than, or in addition to, expressing the accrued benefit as a life annuity commencing at normal retirement age, defines benefits for employees in terms more common to a defined contribution plan. Terms such as a single sum distribution amount with 10% of final average pay times years of service, or the amount of employee’s hypothetical account balance. |
| Defined benefit plan issues | Per plan filing the plan is a Floor-Offset plan. The benefits of this plan are subject to offset for retirement benefits provided by another plan which is a defined contribution plan established by the sponsor. The sponsor should have at least two plans one of which is a defined contribution plan. |
| Compliance issues | Per plan filing the plan is a Stock Bonus Plan. Stock bonus plans are a complex type of profit sharing plan subject to all of the provisions of code section 401(a) along with additional ERISA rules and regulations. |
| Compliance issues | Per plan filing the plan is a Target Benefit Plan. These plans are typically a hybrid of defined benefit and define contribution plans designed to maximize deductions for major shareholders or owners. These plans must comply with the rules and regulations associated with vesting schedules and non-discrimination testing. |
| Compliance issues | Per plan filing this is a Profit Sharing Plan subject to the regulations of IRS code section 401(a). Code section 401(a) is the primary body of law that enables an employer to establish a trust for the benefit of its employees, which is exempt from taxation on its income, and entitles the employer to take income tax deductions for contributions to the trust. Section 401(a) consists of a complex set of rules and regulations that must be complied with on an ongoing basis. Compliance with code section 401(a) rules and regulations is imperative to a plan maintaining its tax-exempt status. |
| Small plan issues | Per plan filing this is a Single-Participant plan. Special rules and regulations apply to single-participant plans and self-employed individuals. Plan sponsors should be aware of these special provisions. |
| Initial or final filing | Per plan filing this is the initial filing for this plan. The establishment of a retirement plan is a complex task. Per the filing instructions for retirement plans: "Each Form 5500 must accurately reflect the characteristics and operations of the plan or arrangement being reported". The elections and features of each plan need to be properly reported with the initial filing. It should be of interest to plan members that the plan sponsor had a predecessor plan. If so, why was it not amended to incorporate the characteristics and features of the new plan? |
| Self prepared document | Per plan filing this plan's annual information report was prepared by the plan sponsor. The preparation of 5500 documents is a complicated task requiring in-depth knowledge of a complex set of rules and regulations established by the IRS and DOL. Preparation errors can result in penalties and potentially the loss of tax-exempt status. Plan sponsors should consider the benefit of having a knowledgeable professional assume the task of preparing annual information returns. |
| Items of special interest | Per the plan filing this is a "Frozen Plan". This means that as of the last day of the plan year, no participant will receive any new benefit accrual. This typically applies to defined benefit plans. Make inquiries of the plan administrator. |
