Nine Requirements to Charge Sites for Frontline Retirement Plan Costs

Offering a retirement account plan, such as a 401(k) plan, for your frontline on-site staff is a good way to attract and keep quality employees. And HUD lets you charge your contributions to these plans, as well as related administrative costs, to your site’s operating account.

But if your plan doesn’t meet the requirements of the HUD Management Agent Handbook [HUD Handbook 4381.5, par. 6.38(e)], HUD auditors may order you to reimburse the site from your own pocket. That’s because once you set up a retirement account plan for your employees and contribute to it, federal law bars you from taking money out of the plan.

Here’s a rundown of the HUD retirement plan requirements.

Retirement Plan Must Meet Nine Requirements

To charge your retirement account contributions for employees and related costs to your site operating account, your retirement plan must meet these nine HUD requirements.

1. Plan must comply with applicable laws and regulations. Your retirement account plan must be a qualified plan approved by federal, state, and local laws and regulations governing such programs [HUD Handbook 4381.5, par. 6.38 (e)(2)(a)]. 

Laws and regulations governing retirement plans may change over time. To make sure your retirement plan is current with the rules, ask your attorney, accountant, or plan manager for a written opinion on your plan’s compliance. You can then ask for a periodic update to its written opinion that your plan complies with governing laws and regulations.

2. Contributions must be for frontline staff. You can charge the site operating account only for retirement account contributions made for frontline employees [HUD Handbook 4381.5, par. 6.38 (e)(1)]. These are on-site employees who handle such frontline tasks as certification paperwork, applicant interviews, and site maintenance. Contributions made for non-frontline employees, such as your central office staff, must be paid out of your management fee.

HUD doesn’t require a retirement plan for frontline staff that’s separate from the one approved for the central management company. What HUD requires is that the plan follows the requirements listed here.

3. Only permanent, full-time employees may participate. To coincide with ERISA Code 29 C.F.R. 2530.202-2 (Eligibility Computation Period requirement), HUD Handbook 4381.5, par. 6.38(e)(2)(b) states, “Only permanent, front-line employees who work full-time at the project (i.e., more than 20 hours per week) may participate. Temporary or part-time on-site employees are not eligible.”

In other words, retirement account contributions for off-site employees, temporary help, and part-time on-site employees can’t be charged to the operating account. “Full-time” means an employee who works at least 20 hours per week at a site.

In HUD Notice H 2011-08, HUD clarified how to handle the common practice for employees to work at several sites performing frontline tasks throughout the work week. Management agents with employees who split their work week among sites may charge employee pension plan costs to project operations as long as the percentage of project funds paid to the management agent for the employee’s pension plan contribution is proportional to the amount of time the employee works at each project. For example, in a 40-hour week, an employee works 10 hours at HUD Site A, 20 hours at HUD Site B, and 10 hours at a non-HUD project. HUD Site A would contribute 25 percent, and HUD Site B would contribute 50 percent of the required weekly contribution to the employee’s pension plan. The remaining 25 percent contribution to the employee’s pension plan would not be paid from HUD project funds.

It’s important to note that these costs paid from site operating accounts are for on-site, frontline employees who work at the sites on a daily basis only, and do not apply to off-site non-frontline supervisors. Also, management agents must maintain records demonstrating compliance with these requirements. This documentation must be included in audited financial statement filings, and on the management entity profile and individual project management certifications.

4. Contributions can’t exceed 10 percent of worker’s base pay. HUD says the dollar amount of the contributions you charge to the site operating account “may not exceed ten percent of the base pay of eligible employees” [HUD Handbook 4381.5, par. 6.38 (e)(2)(c)].

5. Your contributions should belong to the employee in five years. When some or all of the contributions “vest,” the vested portion becomes the employee’s property. Employees who leave their job before your contributions for them are 100 percent vested forfeit the portion that isn’t yet vested.

HUD says the frontline employee is to be vested ownership of no less than 20 percent of the employer’s contribution each year until fully vested. Therefore, employees must be fully vested after five full years of employment [HUD Handbook 4381.5, par. 6.38 (e)(2)(d)].

6. Employee contributions must always belong to employee. Most retirement plans let employees contribute some of their salary to their retirement accounts in addition to what the employer contributes. While employer contributions vest after a certain period of time, contributions made by employees to their own accounts must immediately become the employee’s property. Employee contributions can’t be forfeited or tied to the employee’s length of service with the company [HUD Handbook 4381.5, par. 6.38 (e)(2)(e)].

For example, George, your on-site manager, quits after working at your company for three years. He contributed $4,500 to his retirement account. You contributed $3,000. Your retirement plan says that an employee’s right to employer contributions vests progressively at 20 percent a year. So the employee’s right to employer contributions become 100 percent vested after five years of service. Upon leaving, George is entitled to his $4,500 account contribution (subject to any investment gains or losses). But he is entitled to only 60 percent of the employer contributions—$1,800 (subject to any investment gains or losses). He forfeits the remaining $1,200 because his right to it hasn’t vested yet.

7. Employee accounts must be kept separate. Don’t commingle employee accounts [HUD Handbook 4381.5, par. 6.38 (e)(2)(g)]. You must open and maintain a separate retirement account for each employee participating in the plan. You can’t “commingle,” or lump together, your contributions made for one employee with those made for other employees, even if they all work at the same site.

8. Administrative costs must be prorated among sites. In addition to charging contributions you make for eligible employees, you may also charge the site for the actual costs of administering the retirement account plan. This may include the cost of sending legally mandated notices to plan participants, and/or fees paid to plan administrators, accountants, or attorneys. If your retirement account plan covers more than one site, HUD says you must prorate the cost of administering the plan among the sites [HUD Handbook 4381.5, par. 6.38 (e)(2)(f)].

9. Plan manager must be qualified and experienced. HUD says the administrator of the retirement account plan must be an “outside entity” with an “established history” of managing retirement account plans [HUD Handbook 4381.5, par. 6.38 (e)(2)(h)]. Retirement account plan management isn’t a do-it-yourself project, because your retirement account plan must comply with numerous and complex federal, state, and local laws and regulations governing these plans. And these laws change all the time. HUD says you must make sure your plan keeps up with changes in applicable federal, state and local laws and regulations. So it’s important to get someone to set up and manage your plan who knows what he’s doing.

Your attorney, accountant, or other financial adviser can give you advice on how to find an experienced plan administrator. Make sure the plan administrator monitors benefits laws as part of its duties.