3 Common Mistakes Plan Sponsors Make
Between ERISA and DOL requirements, plan sponsors are under pressure to deliver retirement plans that help employees become prepared for retirement. Because of this job, mistakes are bound to happen.
Here are three of the most common mistakes plan sponsors make with their retirement plans, and how you can best avoid them.
1. Failing to Follow Your Own Plan Document
Most plan sponsors are provided with a plan document from their recordkeeper or TPA (third party administrator) that outlines the plan’s features and day-to-day operations.
It is important to review your plan documents on an annual basis to make sure the plan is designed to meet the goals & objectives of your organization, but to also make sure you are administering the plan according to the plan documents.
In the event that you find a discrepancy between the plan document and how the plan is being administered, you must make a reasonable correction method. It is advised to reach out to your recordkeeper, advisor and/or TPA to see what the plan of action is to make a correction.
2. Misinterpreting the Term “Compensation” as it is Defined by Your Plan
The term “compensation” has a different meaning to each plan depending on how it is defined in the plan document. Compensation may be defined as:
- Wages or salaries
- Other payments to employees for professional services
- Other payments to employees for personal services rendered, including, but not limited to, commissions, tips, and fringe benefits
You must follow your plan document’s definition of compensation.
3. Failure to Make Timely Deposits
The Department of Labor requires employers to deposit deferrals to the plan’s trust as soon as the employer can, and no later than the 15th business day in the following month. The DOL provides a 7-business-day safe harbor rule for employee contributions to plans with fewer than 100 participants.
If an employer fails to make the deposits timely, that may be both an operational mistake, giving rise to planning disqualification (if the plan specifies a date by which the employer must deposit elective deferrals), and a prohibited transaction. You can correct an operational mistake under EPCRS, and resolve a prohibited transaction through the DOL’s Voluntary Fiduciary Correction Program (VFCP).
To avoid making this mistake, payroll and the personnel administering the plan should coordinate efforts to find the earliest dates that deferrals may be deposited, and establish procedures by which deposits are timely made.
This information is not intended as authoritative guidance or legal advice. You should consult your recordkeeper, TPA or advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.