“From a practical standpoint, what are vendors worried about with their plan sponsors and participants?” Sarah Simoneaux rhetorically mentioned at the outset of Virtual Qualified Plan Fiduciary Summit Wednesday morning. “What do they wish plan sponsors would know about addressing various ERISA problem areas, and how those vendors can help?”
Sponsored by Overland Park, Kan.-based Qualified Plan Advisors, the half-day event featured Simoneaux, President of Simoneaux Consulting Services, as well as Faegre Drinker’s Fred Reish, Income America President Matt Wolniewicz, and more.
Simoneaux focused on three ERISA problem areas: Cybersecurity and distribution-related fraud, payroll, and M&A/ownership issues.
It’s a major issue, one that regulators are closely watching, and high-profile cases recently have highlighted just how devastating it can be.
“The bad guys are staying ahead of some of the measures put in place, but service providers are getting cutting-edge in their security measures,” Simoneaux said. “Particularly in their call centers, some are using artificial intelligence (AI) to identify people by their geographic location, tone of voice and so forth to alert call center employees to fraud attempts primarily with retirement plans distributions.”
Preventative measures like two-factor authentication are effective and largely in place with service providers, but a security breach often occurs at the participant level, because the participant has somehow inadvertently revealed their information.
“I filled out a quiz on Facebook and I put in my mother’s maiden name and the name of the street I lived on as a child, but I don’t understand how they got into my account,” Simoneaux noted as an example of what can happen. “They’re getting pretty sophisticated at the places where the money is held because they’re realizing bad actors are going to call. They’re getting very, very good at it identifying those folks.”
Payroll
Everything with 401(k) plans starts with payroll, she continued, and the IRS and DOL are very strict about deadlines for depositing deferrals.
“That’s an area where a sponsor can get into trouble inadvertently, even if they’re following all the processes,” Simoneaux explained. “What’s involved with interfacing with your payroll company and how you train your in-house folks on how payroll and the 401(k) and payroll talk to each other are critical in preventing mistakes.”
And if mistakes are made, they can then discuss the Employee Plans Compliance Resolution Program (EPCRS), how they can fix those mistakes as they go along, and hopefully fix the process overall.
Ownership changes
Lastly, the session touched on small- and mid-sized family businesses and changes to the way 401(k) contributions are handled as a result of an ownership change.
“There are also a lot of mergers and acquisitions going on right now, particularly in small and mid-sized companies. Unfortunately, those of us in the 401(k) industry are the last to know. That has a huge impact because you may be covering a whole group of employees you didn’t expect to cover the plan.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
