Employee Benefit Plan Sponsors – Avoid These Common Mistakes
Employee benefit plan sponsors have an enormous fiduciary responsibility. It is wrought with numerous landmines that must be carefully navigated in order to remain in compliance with the various regulations governing these plans. Unfortunately, too many plan sponsors fall short in this area, making common mistakes, which leave their organizations subjects to hefty fines, penalties and, in some instances, criminal consequences. In order to avoid this outcome, plan fiduciaries should take extra care to make sure they are not failing in the following areas:
- Adhere to the plan documents relating to employee eligibility and vesting requirements. When an employee becomes eligible for enrollment, how he/she should be notified and/or the implementation of a plan’s automatic enrollment provision. Always rely on the plan documents and its eligibility and vesting schedule to provide complete and accurate information.
- Deposit an employee’s deferral money at the earliest date when the employer can segregate the deferral from general assets, based on the plan document’s guidance and other factors such as the organization’s size.
- Maintain plan documents with all of the required information (e.g., compliant summary plan descriptions) in accordance with ERISA and federal regulations.
- Track loan and hardship repayments and make sure they adhere to the plan’s withdrawal provisions and restrictive conditions such as whether multiple loans are permitted and what the repayment schedules entail for each individual loan.
- Apply the proper compensation definitions regarding qualified retirement plan calculation and, if an error is made, use the voluntary correction procedures provided by the IRS or make the correct contribution.
- Assess third-party service providers thoroughly with respect to whether their fees are “reasonable,” and their actions and performance is in the best interest of the plan members.
By performing their ongoing due diligence in accordance with their fiduciary role, plan sponsors can avoid these common pitfalls and the related fallout including potential regulatory proceedings and financial penalties.