Common 401K Plan Mistakes and Best Practices for Employers

On March 25, Haynsworth Sinkler Boyd, P.A.’s Chris Gantt-Sorenson and Mac McLean presented a webinar on employee benefit plans and steps to take should you have to take corrective action with the Internal Revenue Service (IRS) or U.S. Department of Labor (DOL), both of which have jurisdiction over aspects of retirement plans and welfare benefit plans.
 
Both the IRS and the DOL have established ways to correct mistakes in the operation of a retirement plan.  Some of these correction programs allow an employer to simply correct the mistake, but some require a filing with either the IRS or the DOL.
 
In addition, both the IRS and DOL are tasked with investigating retirement plans.  Here are some events or situations that may trigger an investigation:

• A participant complaint
• Form 5500 answers
• Service Provider referrals
• EBSA targeted priority or enforcement project
• Improper Administrative Practices
• ESOPs (are simply more strictly scrutinized)

 
Here are several common mistakes in the operation of a plan that occur:

• Late Contributions
• Failing to Match Employee Contributions
• Excess Plan Contributions
• Failure to timely file Form 5500
• Plan does not satisfy ADP and ACP Nondiscrimination Tests
• Eligible employees not given an opportunity to make a deferral
• Compensation definitions under the Plan not the same as compensation used for calculating contributions
• Participant Loans do not meet requirements of the Plan or the Internal Revenue Code
• Improper Hardship Distributions
• Failing to make minimum employer contributions when the plan is top-heavy
• Failing to follow the terms of your plan or to do so in a timely fashion
• Failing to update plans to reflect changes in laws and regulations
• Failure to operationally comply with a legal rule applicable to the plan (such as calculation of deferral amounts or maximum amounts allocable to a plan participant’s account) or following the plan document’s own requirements

 
Below are several best practices to keep in mind:

• Maintain accurate census information for the plan's participant population
• Perform missing participant searches
• Build communication steps into onboarding, enrollment and exit processes to encourage employee contact
• Document procedures and actions
• Don’t have only one signatory for a plan (lack of checks and balances – greater likelihood of theft)

 
Click here to view the webinar. Please contact Chris or Mac for additional information.