Keeping Your Retirement Plan Compliant

Keeping Your Retirement Plan Compliant

By Ruby Lansdell

Most companies offer a retirement plan for their employees in the form of a 401(k) or 403(b) plan.  They have to offer this benefit to remain competitive.  By offering this benefit, you now have responsibilities to ensure the plan is run properly in accordance with the (1) Plan Document, (2) Department of Labor (DOL), (3) Internal Revenue Service (IRS), and (4) Employee Retirement Income Security Act (ERISA).

We audit a lot of retirement plans and see many operational errors in the plans.  Most of the errors we see are in first time audited plans (plans that have 120 participants or more) because of the complexities of operating a retirement plan and the lack of education that occurs in small plans (unaudited plans).  Typically, retirement plans are not a daily responsibility of the plan administrator, or those responsible for carrying out the plan, and thus, details can be missed that can be very costly for the Plan sponsor.

Below are a few of the most common mistakes that we encounter that you should be aware of:

  • Definition of Compensation

W-2 wages are commonly considered an employee’s compensation, but the plan document may define compensation differently.  The plan document may exclude items like bonuses, fringe benefits, commissions, and severance pay.  Compensation can vary from plan to plan, so please be sure to read your plan document.

  • Eligibility to Participate in the Plan

Enrolling employees into the plan at the proper time can be daunting.  Some documents call for this to occur immediately, some make employees wait, some are automatic, and some are the on the first day of the month, quarter, or on a semi-annual basis.  Ensuring the accuracy of employee data such as dates of birth, hire and termination dates, and number of hours worked is key.  Knowing and complying with the Plan’s enrollment criteria is crucial.

  • Company Remittance Policy

Once you withhold money from an employee’s paycheck, you are required to remit these monies as soon as it is reasonably possible to segregate them from the company’s assets.  For a small plan with less than 100 participants, this contribution can be made no later than the 7th business day following the withholding date (safe harbor rule).  Plan administrators should review their remittance policies to ensure contributions are remitted timely and consistently.

These are just a few of the most common mistakes that we identify during our audits.  Although your plan may not be required to be audited, it is a good time to review these items to ensure you are in compliance.  You can do this yourself or you can have a professional perform this checkup for you to ensure compliance of your plan with the many different regulating bodies and to help mitigate the risk of noncompliance that could result in large penalties and fines.  You will be better off if you find and correct it before the DOL or IRS finds it for you!!

Ruby Lansdell

Ruby Lansdell Assurance Supervisor