Look out for Rising IRS Audits for Retirement Plans

Audits and examinations of Employee Plans have been rare over the last decade due to IRS funding. Even now, Plan Sponsors under audit or their representatives are forced to mail hard copies of the requested materials, or send via fax, since the IRS is not set up to receive secured emails. But the Consolidated Appropriations Act of 2022 provided an additional $675 million in funding to the IRS, bringing the total budget to over $12.5 billion. The new budget revealed that over $5 billion will fund additional tax enforcement, meaning audits may soon be on the rise. An announcement made Friday seems to reinforce that point.

In the June 3, 2022, issue of the IRS Employee Plans News, the IRS announced a new pre-audit compliance “opportunity” for employer-sponsored retirement plans selected for audit beginning immediately (the “Pilot Program”). Under the Pilot Program, the IRS will send an initial letter to plan sponsors whose retirement plans have been selected for a random audit. This letter will explain that the plan sponsor has 90 days to identify and voluntarily correct any compliance issues with the plan and notify the IRS of the corrective actions taken through the Employee Plans Compliance Resolution System (EPCRS). This is a welcome departure from the long-time voluntary correction principle that allowed voluntary correction only until the IRS had identified the plan for audit. The IRS will evaluate whether to continue the program and/or include it in its EPCRS program at the end of the Pilot Program (although the newsletter did not say when the end of the Pilot Program will be).

The IRS established the EPCRS Program over 30 years ago. This voluntary program allows plan sponsors to correct operational errors without plan disqualification. Over the years, the IRS has updated the Program, adding items to the list of failures that may be corrected without additional disclosure under the Self Correction Procedure (SCP). Certain failures required a submission for a letter of forgiveness under the Voluntary Compliance Procedure (VCP). They also extended the time in which you can use either program to correct certain errors in plan operation. Prior to the release of the Pilot Program, once a plan was under review (audit), the only solution a Plan Sponsor had was Audit Closing Agreement Program or Audit CAP, which imposed stricter penalties and required greater user fees than either the SCP or VCP.

The program as described in the announcement provides powerful incentives to encourage plan sponsors to voluntarily comply in the 90 days following receipt of the initial letter. The first is a reduction in the sanctions involved in the audit process. Traditionally, sanctions for compliance issues discovered in a retirement plan audit are calculated under the IRS’s Audit CAP program which considers the nature, extent, and severity of the failure, and are based on a percentage of plan assets, which can be extremely expensive even for a small plan covering a limited number of employees. Audit CAP fees typically started at the taxes on Plan Disqualification and negotiated down from there.

Under the Pilot Program, if a plan sponsor responds to the initial audit letter with compliance items it has identified and the fixes it has implemented, the IRS will not assess sanctions for failures eligible for self-correction and will assess sanctions for corrections made in accordance with its published Voluntary Correction Program based on the user fees applicable to that program (which currently max out at $3,500, a figure significantly lower than most Audit CAP sanction fees). The announcement also indicates that if a plan sponsor responds to the initial letter, the IRS will determine whether to issue a closing letter or to conduct a limited or full scope audit. How it will make that determination has not been disclosed, but plan sponsors may have some ability to limit an impending audit or avoid an audit completely by responding to the initial letter in a way that demonstrates full compliance.

EJReynolds can represent Plan Sponsors going through such a review and can negotiate directly with the IRS on fees and sanctions. Plan sponsors that receive an initial letter should immediately contact their retirement plan consultant to begin the process of identifying compliance failures, taking any appropriate corrective actions, and preparing a summary of the compliance issues and corrections made for the IRS. Operational and plan document errors discovered by a plan sponsor should receive priority for timely correction to ensure any compliance issue resolution within 90 days of the receipt of an initial letter.

As of June 1, 2022, the IRS has started sending these audit letters. If you or your client have received an initial letter or have questions, please contact your EJReynolds Plan Consultant immediately. We are here to help.

Important 401(k) Testing Deadlines to Remember for 2022!

Since most 401(k) plans have a calendar year plan year end, now is the best time to review testing deadlines for the upcoming Plan Year. In general, 401(k) plans must be tested annually to demonstrate that they do not discriminate in favor of highly compensated employees or provide benefits that exceed certain statutory or regulatory limits. If a plan “fails” any of the required tests, the plan sponsor must take corrective actions, and there are established deadlines for correcting certain failures.

The following is a brief summary of these deadlines:

  • March 15th – Deadline for issuing corrective distributions to correct ADP/ACP testing failures. Of course, this does not apply to Safe Harbor 401(k) plans, as those automatically satisfy the ADP/ACP testing.

In general, corrective distributions must be issued within 2 ½ months following the close of the plan year to avoid a 10% excise tax imposed on the excess amounts. Plan sponsors of 401(k) plans that include an automatic enrollment feature that satisfies certain requirements have up to 6 months to issue corrective distributions without incurring the excise tax.

In either situation, correct distributions must be issued no later than the last day of the plan year following the plan year in which the testing failure occurred to protect the qualified status of the plan.

  • April 15th – Due date for issuing corrective distributions for excess deferrals (i.e. participant deferrals made in excess of 402(g) limit –  $19,500 for 2021). If the excess amount, plus related earnings, is not distributed by this date, the participant is in effect taxed on the excess amount twice, both in the year the excess occurred and the year of the distribution. (Note: This deadline is the same, regardless of plan year).
  • June 30th – Extended due date for issuing corrective distributions for ADP/ACP testing failures under “eligible automatic contribution arrangement” 401(k) plans; the 10% excise tax applies to distributions made after this date.
  • October 15th – Deadline for adopting a retroactive plan amendment to correct a coverage or nondiscrimination testing failure (if applicable). The amendment must be adopted no later than 9 ½ months following the close of the plan year in which the failure occurred, as provided for under specific applicable regulations.
  • December 31st – Final deadline for issuing corrective distributions for ADP/ACP testing failures for the prior year (or for making a Qualified Non-Elective Contribution/Qualified Matching Contribution to correct the failure).

The deadlines 401(k) plan sponsors must observe are numerous and complex; the deadlines listed above are not meant to be comprehensive, but rather, represent critical dates related to the correction of specific plan testing failures.

Please contact our Plan Consultants to learn more about how these rules impact your plan and participants!

DOL Updates Approach to ESG Factors 

Earlier this year, the DOL published long-anticipated guidance on the use of “ESG” factors in evaluating retirement plan investment options. The notice of proposed rulemaking attempts to settle the recent regulatory game of ping pong surrounding use of ESG factors by setting forth proposed regulations that would revise certain fiduciary duty requirements.


So, what exactly are ESG factors? The acronym “ESG” stands for Environmental, Social, And Governance. The term “ESG factors” denotes consideration of how a potential target investment values and responds to environmental, social, and governance matters. For example:


  • Environmental: How an entity is addressing potential climate-change-related factors.
  • Social: Entity’s workforce practices, progress on diversity and inclusion, and labor relations.
  • Governance: Entity’s board composition, executive compensation, transparency in corporate decision-making, and avoidance of criminal and civil liability.


Over the years, there has been a lot of back and forth about whether plan fiduciaries may consider ESG factors when evaluating a potential investment or whether that would violate certain fiduciary duties under ERISA.


The proposed regulations make it clear that DOL believes ESG factors not only could be considered when evaluating investments for retirement plans, but often would be required considerations in the analysis of plan investments. The proposal clarifies that fiduciaries evaluating investment options may consider any factor that is material to an economic risk-return analysis—including ESG factors (which the guidance says are “often” material factors that could impact investment performance). The proposal also includes some proposed revisions to duties associated with the exercise of proxy voting and other shareholder rights for plan investments.


Notably, this is only a proposed rule and there are not any immediate deadlines. However, it is a clear indication of the Department of Labor’s current interpretation of fiduciary obligations. We encourage you to meet with clients now to discuss these changes. Clients may have been following this ESG debate for years and be eager to learn how it will impact their fiduciary duties (and how you are responding if you are a fiduciary to their plan).


Whether it’s a discussion about plan design strategies that best meet your clients’ needs or talking more about the latest legislative news impacting your retirement practice, the retirement plan design specialists at EJReynolds look forward to helping you achieve more sales success through partnering together with us.


Thank you for the privilege of working with you and please feel free to call us for assistance in meeting your retirement plan sales and servicing needs.

New 2022 IRS Retirement Plan Limits Announced

The Internal Revenue Service publishes, on a yearly basis, certain Pension Plan Limitations for the coming year. We have outlined the most commonly applied limits for your reference.

Maximum Defined Contribution Annual Additions Limit:  

In a Defined Contribution Plan, which includes Profit Sharing and 401(k) Plans, the Internal Revenue Code sets limits on contributions made to a participant’s account.  The Code uses the term “annual additions” which represents both employee and employer contributions as well as reallocated forfeitures.  Effective January 1, 2022, the annual dollar limit for defined contribution plans is the lesser of 100% of compensation or $61,000.  

Maximum Defined Benefit Limit: 

Ultimate benefit that may be funded for at retirement.  Effective January 1, 2022, the annual dollar benefit under a defined benefit pension plan is the lesser of 100% of compensation or $245,000.

Annual Compensation Limit:

Effective January 1, 2022, the annual compensation limit is $305,000.  Compensation in excess of the limit will be disregarded for all computation purposes.

Key Employee defined for Top Heavy determination: 

1. A 5% owner, without regard to compensation, or

2. 1% owner whose annual compensation is over $150,000, or

3. Officers with annual compensation in excess of $200,000.

Highly Compensated Employee (HCE) defined for 401(k) / 401(m) testing:

1. A 5% owner of an Employer or an Affiliate in the current or the immediately preceding plan year, or

2. Any employee earning more than $130,000 in 2020 ($135,000 for 2022)

3. Constructive ownership rules apply attributing ownership to spouses and lineal ascendants and descendants (parents, grandparents, children and grandchildren) of the owner in both of the above employee definitions.

Maximum Limit on 401(k) Elective Deferral Contributions:

A participant’s elective deferral contributions under all 401(k) plans in which he or she participates during any taxable year is $20,500 for the 2022 Calendar Year. 401(k) plans may permit participants who have reached age 50 by the end of the plan year to make annual catch-up contributions once the annual dollar limit or a plan-imposed limit on elective deferrals has been reached.  For calendar year 2022, the limit is $6,500.

Maximum Limit on SIMPLE 401(k) or SIMPLE IRA Deferral Contributions:

A participant’s elective deferral contributions under a SIMPLE 401(k) plan or SIMPLE IRA account in which he or she participates during the year is $14,000 for the 2022 Calendar Year. Participants who have reached age 50 by the end of the plan year to make annual catch-up contributions once the annual dollar limit or a plan-imposed limit on elective deferrals has been reached.  For calendar year 2022, the limit is $3,000.

Taxable Wage Base:

The Taxable Wage Base for 2022 is $147,000.

Please call us with any questions you may have. For a printable version of the plan limits, click here.

Important ERISA Deadlines are Rapidly Approaching

To satisfy annual reporting requirements under Title I and Title IV of ERISA and the Internal Revenue Code, The U.S. Department of Labor (DOL), Internal Revenue Service (IRS), and Pension Benefit Guaranty Corporation created the Form 5500 Series. Form 5500 satisfies the yearly requirement for pension and employee benefit Plan Administrators to file a report detailing the plan’s financial condition, investments, and operations. It is generally required to be filed by the last day of the seventh month following the end of the plan year (unless an extension has been granted).

During a “normal” year, plans that operate on a calendar year are required to file Form 5500 with related attachments no later than July 31st. If the corporate return is on extension, the Form 5500 may be filed by the due date of the corporate return, with a copy of the extension attached. Additionally, the Plan may request an automatic extension till October 15th on a Form 5558 filed by the original due date (July 31st). If we did not receive a signed copy of a client’s return by July 31st, we applied for the extension on their behalf.

During 2020, because of unforeseen circumstances due to COVID-19, Plan Sponsors were granted an extension of time for certain off-calendar year plan returns that were originally due in April and May, but no additional time was granted due specifically to the pandemic since then. Likewise, there have been many disasters over the years that caused the October 15th deadline to be extended due to hurricanes, flooding and wildfires, just to name a few.

Since the implementation of certain sections of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, a corporation, partnership, or individual may adopt a Qualified Plan by the due date of their return. This was to keep parity with Simplified Employee Pensions (SEPs) and Individual Retirement Accounts (IRAs), which may be adopted and funded well after the end of the calendar year. In a move no one saw coming, the IRS recently ruled that plans adopted after the end of the year will not have a Form 5500 filing requirement until the second year of the plan. This means that if you retroactively adopted a plan in 2021 by the due date of your return for 2020, you could take the deduction on the 2020 return, but the first Form 5500 will not be due until the 2021 Plan Year return is due. We assume the Form will be changed to somehow indicate that this occurred.

The SECURE Act also increased penalties for late filing of the Form 5500 from $25 per day to $250 per day, with a cap increased from $15,000 to $150,000. There were no changes to the user fees for the Department of Labor Delinquent Filer Voluntary Compliance Program that provides relief from these penalties if the Plan Sponsor comes forward voluntarily and brings these late filings current.

At this time, we will operate under the pretense that other deadlines will remain in place with the understanding they may change. The following is a partial list of upcoming ERISA Plan Compliance deadlines:

  • July 31: The IRS’s above-mentioned Form 5500 due date for plans that end on December 31. This is also the deadline to file Form 5558 for those requesting an extension to October 15, 2021.
  • September 15: Form 5500 due for plans eligible for an automatic extension linked to a corporate tax extension.
  • September 30: Summary annual reports due to participants from plans with a December 31 year-end – i.e., due nine months after the plan year-end or two months after filing Form 5500.
  • October 15: IRS deadline for filing Form 5500 after plan files Form 5558 to request an extension.
  • November 15: Summary annual reports due to participants if the Form 5500 deadline was extended because of a corporate tax filing extension.
  • December 1: Deadline for delivery of certain disclosures to participants including Safe Harbor Matching Notice, Fee Disclosure Notice on participant directed plans, Automatic Enrollment or Automatic Escalation notice for certain Automatic Contribution Arrangement 401(k) plans and the Notice of Qualified Default Investment Alternatives (QDIA Notice).
  • December 15: Extended deadline for providing summary annual reports to participants if the Form 5500 deadline was extended because of filing Form 5558.

The Form Series 5500 Series has always been a document of Public Record since the enactment of ERISA, meaning that the data reported may be used as a research, compliance, and disclosure tool for the DOL, and a disclosure document for plan participants and beneficiaries. With the information now readily available on the internet at www.efast.dol.gov, it is also a source of information and data for use by other Federal agencies, Congress, and the private sector to assess employee benefit, tax and economic trends and policies.

If you would like to learn more about ERISA deadlines, please contact us and we will be happy to assist you. Call 954-431-1774.

Helping Our Clients Prevent Plan Theft

Plan theft is a perennial hot-button issue in the benefit plan arena. This is for good reason. Recent estimates show that defined contribution plans alone hold over $6.3 trillion for 106 million participants. This makes plans a target for thieves—for example thieves may steal a participant’s identity and submit a request for a distribution. When the participant discovers the missing funds (sometimes years later), they often turn to the plan sponsor looking to be made whole (such as in the highly publicized Estee Lauder case).

Recent DOL guidance noted that mitigating cybersecurity risk is a fiduciary duty and specifically notes that plan fiduciaries should understand and guard against identity theft. You can help your plan sponsor clients meet their fiduciary obligations and protect their participants.

Here are some questions you can discuss with your clients to help them evaluate their processes and combat the risk of plan theft:

· Who is in charge of approving distributions and loans? How do they ensure the person requesting the distribution or loan is the actual participant or beneficiary?

· Are all changes to employee data (such as changed address, marriage/divorce, etc.) passed along to the plan’s TPA or recordkeeper?

· How are address changes verified? Is there extra verification when a change is made close in time to a loan or distribution request?

· Are prudent processes in place to mitigate identity theft and cybersecurity incidents? What do password requirements look like? Is multifactor authentication required?

· Does the client know what steps to take if they suspect theft or another cybersecurity incident has occurred?

EJReynold’s takes cybersecurity and identity theft very seriously. Give us a call today to discuss ways we can help protect your plan’s assets and to review practical steps you can take to reduce the risk of plan theft.

Please contact us at 954.431.1774 and we will be happy to assist you.

Gift of Time: Retroactive Plan Adoption Under the SECURE Act.

The SECURE Act has extended the annual deadline by which employers may adopt retirement plans. This can be a great value-add for existing clients, as well as an enticing selling point for new clients — particularly those who are interested in establishing a plan to offset a large or unexpected tax liability.
Before the SECURE Act, an employer had to adopt a retirement plan before the end of its taxable year in order to receive a deduction for that year. With the SECURE Act, employers may now retroactively adopt a retirement plan up until their tax return due date (including extensions) for that year. That means that business owners who realize that they could use an extra deduction for 2020 can still adopt a plan now and receive a deduction for 2020 as long as they extended their company’s tax return due date. This is a fantastic opportunity for many business owners.
The extended tax return due date for most sole proprietor-ships, C corporations, and single-member LLCs is October 15, and for most partnerships, S corporations, and multi-member LLCs is September 15 (companies operating on a fiscal year basis may have different deadlines). Both defined benefit plans and profit sharing plans can be adopted retro-actively, but defined benefit plans generally need to be adopted by September 15 to comply with applicable funding rules.
Your Third-Party Administrator (TPA) partners are ready to support your discussions with business owners about these retroactive plans. Be sure to consult with them as early as possible regarding potential new plans to ensure your clients have ample time to get the necessary documentation and accounts established to maximize this opportunity.
The chart below details the practical deadlines for adopting a plan in 2021, making the plan effective for the 2020 tax filing year with an allowable deduction on the 2020 tax return.

Deadline approaching to adopt a Safe Harbor 401(k) Plan for 2021!

Have you been talking with prospective clients about adopting a new 401(k) plan? Even in today’s  environment, many businesses are thriving and want to secure deductions for the 2021 Tax Year. If so, the deadline for adopting a safe harbor 401(k) plan for 2021 is quickly approaching, so now would be a great time to schedule a follow-up conversation!

Safe harbor 401(k) plans are attractive for many employers (especially small employers) because they provide relief from certain plan testing requirements. Specifically, a safe harbor plan is generally exempt from ADP/ACP testing enabling the plan’s highly compensated employees to maximize elective deferrals, i.e., 401(k) deferrals/Roth contributions, without concern over the non-highly compensated employees’ level of participation. Safe harbor plans may also be exempt from the top-heavy requirements if certain conditions are met.

What is the deadline for adopting a safe harbor 401(k) plan?

In general, the deadline for adopting a new safe harbor 401(k) plan is October 1, 2021. There are, however, certain notice requirements that must be satisfied, and eligible employees must be provided a reasonable period to make their deferral elections. In a new plan, the rule is that all eligible employees must have at least three months to make elective deferrals under the plan, so planning is key! Remember, most investment platforms take 30-45 days to be ready to accept contributions.

 Are there limits on the amounts that can be deferred?

No. There are no restrictions (other than the normal limits) placed on the amounts that can be deferred during this three-month period. As a result, owners, key employees and any other participants would still have time to make elective deferrals of $19,500 (plus $6,500 for participants aged 50 or older). This, of course, assumes they will have enough compensation to do so within this time period.

 What are the contribution requirements?

The plan must make either a safe harbor matching or safe harbor nonelective contribution. The basic safe harbor matching contribution formula is 100% on the first 3% of deferrals, plus 50% on the next 2% (maximum of 4% match). Alternatively, an enhanced safe harbor matching formula can be used, which is most commonly 100% on the first 4% of deferrals. Safe harbor nonelective contributions must be at least 3% of each participant’s compensation, regardless of whether they elect to make deferrals. Note that safe harbor contributions (match or nonelective) must be 100% vested, subject to the same distribution restrictions as elective deferrals, and cannot be subject to any allocation conditions, e.g., employment on the last day of the plan year. Auto-enrolled plans have their own safe harbor plan design with either a matching contribution of 100% of the first 1% of salary deferred plus 50% of the next 5% of salary deferred, or a non-elective contribution of 2% across the board to all eligible employees. The Auto-enrolled safe harbor contributions may be on a vesting schedule if they are 100% vested after two years of service, but the same requirement of no other allocation conditions apply.

 What about the SECURE Act changes to Non-elective Safe Harbor Plans?

While it is true that the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 does allow a plan to be amended at any time to become a safe harbor non-elective plan, even up until the due date of the corporate tax return for that plan year, the plan must still satisfy the other requirements of a safe harbor plan. The main requirement is that the plan must be established by October 1st of the tax year for which the deferrals are made (on a calendar year basis). This means that the Plan Sponsor cannot wait until December 1st to establish the plan and then retroactively amend the plan to be a safe harbor non-elective plan to have the Highly Compensated Employees defer the maximum dollar amount.

 Tax credit available for Small Employers

As an incentive to establish a new 401(k) plan, the SECURE Act added provisions for small employers (generally, businesses with no more than 100 employees) to receive a tax credit of up to $5,000 (per year, for the first three years) to help defray the costs associated with establishing and maintaining a plan. An additional credit of $500 per year is available for new or existing plans adding an automatic enrollment feature.

 Which design is best?

One-size does not fit all. It really depends on the goals of the employer and demographics of the workforce. The plan must be in effect for at least three months, and as stated before, most investment platforms will require 30-45 days to be ready to accept deposits. The good news is that EJReynolds can assist you in determining what will work best for your clients after considering their unique needs! Please contact us to learn more.

If you would like to learn more about these rules, please contact us and we will be happy to assist you. Call 954.431.1774

Department of Labor Issues Guidelines for ERISA Fiduciaries on Cybersecurity

Today, more than ever, Americans are online. Online banking, online shopping, healthcare appointments are set online, even checking on your Social Security benefits and retirement accounts is done online. Which means, a lot of personal information is also online.


With the exponential growth of Internet connectivity there have been more and more incidents of cyber-attacks often leading to devastating consequences. Although the Department of Homeland Security has the underlying Cybersecurity and Infrastructure Security Agency (CISA) as a watchdog against cyberattacks, the Employee Benefits Security Administration (EBSA), the agency within the Department of Labor governing ERISA issues, recently published guidelines for ERISA Fiduciaries, Plan Sponsors and Plan Participants to combat these cyber security threats, and effectively defend against these malicious attacks.


On April 14, 2021, the EBSA has provided cybersecurity guidance for the first time ever. The EBSA estimates that there are over 140 million plan participants in the private pension system, including corporate sponsored defined benefit, 401(k), and 403(b) plans with estimated assets of $9.3 trillion. This is why it is imperative to provide sufficient protection for participants and their assets. The EBSA guidance includes tips on what to look for when hiring Service Providers, Cybersecurity Best Practices, and General Online Security Tips.


What to look for when hiring a Service Provider:


  1. Ask about the service provider’s information security standards, practices and policies, and audit results. Look for service providers that follow a recognized standard for information security and use an outside (third-party) auditor to review and validate cybersecurity.
  2. Ask the service provider how it validates its practices and what levels of security standards it has met and implemented. Look for contract provisions that give you the right to review audit results demonstrating compliance with the standard.
  3. Evaluate the service provider’s track record in the industry, including public information regarding information security incidents, other litigation, and legal proceedings related to vendor’s services.
  4. Ask whether the service provider has experienced past security breaches, what happened, and how the service provider responded.
  5. Find out if the service provider has any insurance policies that would cover losses caused by cybersecurity and identity theft breaches.
  6. When you contract with a service provider, make sure that the contract requires ongoing compliance with cybersecurity and information security standards – and beware contract provisions that limit the service provider’s responsibility for IT security breaches. Also, try to include terms in the contract that would enhance cybersecurity protection for the Plan and its participants.


Use Cybersecurity Best Practices:


  1. Have a formal, well documented cybersecurity program.
  2. Conduct prudent annual risk assessments.
  3. Have a reliable annual third-party audit of security controls.
  4. Clearly define and assign information security roles and responsibilities.


  1. Have strong access control procedures.
  2. Ensure that any assets or data stored in a cloud or managed by a third-party service provider are subject to appropriate security reviews and independent security assessments.
  3. Conduct periodic cybersecurity awareness training.
  4. Implement and manage a secure system development life cycle (SDLC) program.
  5. Have an effective business resiliency program addressing business continuity, disaster recovery, and incident response.
  6. Encrypt sensitive data, stored and in transit.
  7. Implement strong technical controls in accordance with best security practices.
  8. Appropriately respond to any past cybersecurity incidents.


Follow proper Online Security protocol:


  1. Register, set-up and routinely monitor your online account
  2. Use strong and unique passwords
  3. Use multi-factor authentication
  4. Keep personal contact information current
  5. Close or delete unused accounts
  6. Be wary of free wi-fi
  7. Beware of phishing attacks
  8. Use antivirus software and keep apps and software current
  9. Know how to report identity theft and cybersecurity incidents


The guidance issued by the DOL is an important step in helping Plan Sponsors, Fiduciaries and Plan Service Providers to safeguard retirement benefits and personal information. We anticipate that in time, the DOL will issue additional guidance, perhaps even standards, and requirements to combat cybercrime as this has been on the agenda of US Government Accountability Office (GAO) for some time. As additional information is released, we will continue to keep you updated. EJReynolds has been adamant about security and will continue to update the EJReynolds Cybersecurity Policy as available.


Trust your plan development and your personal data with the retirement plan experts at EJReynolds.


Our commitment to your security is just one more reason to trust your retirement plan administration to EJReynolds. To learn more, please call 954.431.1774. We are here to help.

ESG Investing – A Consultant’s Point of View

Unless you’ve been living under a rock, you must have heard about ESG Investing. The concept of investing while assessing the Environmental, Social and Governance aspects of underlying companies has become a major focus of the SEC, Department of Labor and Investment Advisors recently. The concept is now working its way into the investment portfolios of America’s most common retirement program: the 401(k) Plan.

The ESG concept, also known as Corporate Socially Responsible Investing takes action to protect the environment as well as promote human rights and equal employment opportunities. It has long been established that businesses and corporations should act responsibly in the communities and environments they operate in. These actions essentially established Socially Responsible Investing (SRI) screens, but it was not until the 1960s that SRI vaulted forward as an investment discipline in the United States.

  • 1960s – Protests of the Vietnam War led to boycotts of companies that provided weapons used in the war. Community development banks were established in low-income communities to provide financing opportunities that were otherwise not available.
  • 1970s – Social activism spread to labor-management issues at many corporations, while the protection of the environment also became a consideration for many investors.
  • 1980s – While Jesse Owens was imprinted on and made advertisements for the South African Krugerrand, many churches, universities, and organizations protested to force US Companies to divest themselves from operations in South Africa due to apartheid. Some of the first SRI mutual funds were marketed as investments. The Calvert Social Investment Fund not only restricted investment away from weapons, alcohol, tobacco, and gambling, but also examined more modern issues including nuclear energy, environmental pollution, and the treatment of workers.
  • 1990s – Sufficient proliferation of SRI mutual funds and growth in popularity as an investment approach led to the creation of an index to measure performance. The Domini Social Index, made up of 400 primarily large cap US Corporations launched in 1990 and over time, helped to disprove the argument that investors were settling for lower returns by limiting the companies they included in their portfolios.

So, how do these SRI practices relate to a 401(k) Plan? In November 2020, the Department of Labor published regulations billed as the final rule on “Financial Factors in Selecting Plan Investments”. This rule amended the investment duties under Title I of ERISA requiring Plan Fiduciaries to select investments and investment courses of action solely on “pecuniary factors”, which were defined as factors a fiduciary prudently determines are expected to have a material effect on risk and/or return of an investment based on appropriate investment horizons consistent with the plan’s investment objectives and funding policy. In other words, the amended rules would require plan fiduciaries to select investments based solely on financial considerations of the investment. The DOL specifically indicated this was an effort to set limits on SRI investing (or as they referenced it, ESG Investing), stating that the only factors in fund selection should be three ERISA duties – prudence, diversification, and loyalty. The DOL felt that if decisions were made based on other factors, the Plan Fiduciaries may be in breach of their fiduciary duties. But is ESG Investing a breach of fiduciary duty?

When selecting investments in a qualified plan, ERISA dictates that a Plan Fiduciary must act rationally for the exclusive benefit of all participants and must ensure diversification among asset classes. The rule of loyalty requires that securities be purchased at a fair market value, not just what they are willing to pay for the security but ensuring they are paying the value of the security. This is especially true when preparing a menu of funds for participants to direct their investments. The initial DOL regulation assumed that socially responsible investing is somehow less prudent, less diversified or has less value. However, in March of 2021. the DOL released an enforcement policy statement that they will not enforce the recently published final rules and would be investigating the matter further. It may have been due to the public comments, it may have been due to the change in leadership, but the DOL is discussing the future consideration of these funds and their ability to be part of a prudent investment line-up.

New surveys suggest that many workers are not aware of ESG options but would likely invest in them if offered the choice. The success of companies such as Bombas, Toms and DIFF, who donate socks, shoes, or glasses to under-served communities with each purchase, proves there is a strong desire and market for this type of investing. If a fund menu provides acceptable ESG investing options as well as sufficient non-ESG alternatives, and the participant can construct a well-diversified portfolio either way, there is no problem under ERISA. There is no requirement to offer these funds, but if participants want to invest this way, the plan may find increased participation, greater participant engagement and more successful retirement outcomes. Ultimately, isn’t this why a company establishes a retirement plan to begin with?