The tax code governing 401(k) plans was written to prevent qualified retirement plans from overly favoring Highly Compensated Employees (HCEs). A series of non-discrimination tests were devised to measure whether a plan’s design or operation lends to favoring the HCEs over the Non-Highly Compensated Employees (NHCEs). All year end testing begins with the coverage test in accordance with IRS Code section 410(b). Once the coverage test is passed or, if not passed, once steps have been taken to pass coverage, then the average deferral percentage (ADP) test must be performed. The ADP test uses mathematical equations to compare the participation and contribution rates of the HCEs to the NHCEs in order to determine whether the plan is discriminating in favor of the HCEs.

Almost every sponsor of every tax-qualified retirement plan must obtain a fidelity bond in accordance with section 412 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Despite the broad application of this requirement, a surprising number of plan sponsors are unaware of this requirement and, in fact, do not have a bond at all or do not have a bond in the proper amount. Consequently, this article is written in order to help explain the requirement in order to attempt to ensure that those who are subject to this requirement satisfy it.

This article is intended to share with you a recent change to the Department of Labor’s (“DOL”) enforcement procedures regarding the late remittance of participant elective deferrals by plan sponsors. Unfortunately, the DOL appears to have adopted a more aggressive and threatening approach with regard to plan sponsors who attempt to correct such failures without pursuing “pristine” correction under the DOL’s “Voluntary Fiduciary Correction Program” (“VFCP”). The following explains this issue, its history and what plan sponsors should be prepared to experience in connection with these matters going forward.