JOHN T

JOHN T. CHEEK, CPA

Update on Benefit Plans- August 2002

07/31/02

Legislating Honesty and Ethics

Yesterday, President Bush signed into law the Sarbanes-Oxley Act of 2002. Designed to "restore investor confidence in our financial systems", the Act contains a huge menu of criminal penalties for fraud, independent oversight of the accounting profession, restrictions on consulting by auditors, independence rules, and more, but precious little that is directly related to ERISA plans. Two provisions that plan administrators may find interesting:

INSIDER TRADING DURING PENSION FUND BLACKOUT PERIODS-

It is now unlawful for any director or executive officer of an issuer, directly or indirectly, to purchase, sell, or otherwise acquire or transfer any equity security of the issuer during any blackout period with respect to such equity security if such director or officer acquires such equity security in connection with his or her service or employment as a director or executive officer.

CRIMINAL PENALTIES FOR VIOLATIONS OF ERISA

Title I Part 1- "Reporting and Disclosure" is the section of ERISA that mandates annual audited financial statements, Form 5500 reporting, SARs, SPDs, and more. Under the old law, any person who willfully violated any provision of Part 1 of Title I, or order or regulation under this part, could be fined up to $5,000 and imprisoned up to one year. Violation by a person not an individual carried a fine up to $100,000. Under the new law, criminal penalties are increased, by striking `$5,000' and inserting `$100,000'; by striking `one year' and inserting `10 years'; and by striking `$100,000' and inserting `$500,000'.

This may sound pretty hefty, but the civil penalties that can be imposed under Title I- $1,100 per day, can far exceed $500,000. (The largest civil penalty assessment that I have seen was over $1.3 million. And that didn’t claim any wrong-doing, just bad footnotes.)

Multiemployers: Refund of Mistaken Contributions and Withdrawal Liability Overpayments

ERISA and the IRC require that Plan Assets be held for the exclusive benefit of participants, and this rule would normally prohibit refunds of employer contributions. An exception is allowed for mistaken contributions that are returned within one year of the date of contribution. In 1980, multiemployer plans were given a slightly different rule: excess contributions due to a mistake of fact or law may be returned within six months after the date the plan administrator determines that the error occurred. Regulation 1.401(a)(2)-1 (issued 7/22/02) clarifies this further. a) An excess payment is considered "returned" within the six months if the employer files a claim for it in the required time period, b) no interest or earnings can be paid on a refund of excess contributions, but the refund must be reduced by any losses attributable to the excess contribution, c) no participant’s account can be reduced below what it would be, had the mistake not occurred. Multiemployer plans can refund overpaid withdrawal liability, with interest, if the overpayment, is returned to employers within six months of the administrator’s determination that the error occurred.

New on the Web at cpaSpan.com

FMLA: Military Service time counts towards 12 months/1,250 hours requirement for Family and Medical Leave Rights.

Sarbanes-Oxley Act of 2002: full text

If I seem more focused on 5500 audits than most CPAs you know, try me: put me on the list for your next RFP. Or, to talk about your 5500 audit, call me at 585-226-2621.

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