Employee benefits have become increasingly more complex over the years. Today, there are many more benefits being offered, some of which are employer-paid and others, such as voluntary benefits that are paid for by the employee.
What hasn’t changed, however, is the importance of due diligence on the part of plan sponsors. In order to meet their regulatory compliance requirements, plan sponsors should avoid making these common mistakes:
- Not maintaining accurate and complete plan documentation
- Not following proper eligibility and retirement plan enrollment procedures
- Not adhering to retirement plan hardship withdrawal terms
Regarding accurate and complete plan documentation, it is important that all pertinent information based on ERISA and federal requirements are met. Failing to provide information such as a compliant summary plan description can impose significant fines and other penalties on the plan sponsor.
Failing to notify employees of their retirement plan eligibility and failing to make certain that automatic enrollments adhere to the requirements noted in the plan documents should be avoided. This requires that those charged with enrolling eligible employees understand the eligibility conditions of the organization’s retirement plan and adhere to them fully.
The pandemic has placed many employees in difficult financial circumstances. As a result, many are being forced to make economic hardship withdrawals or take out loans from their retirement plans. It’s important to confirm that these withdrawals are permissible under the plan’s terms and/or that there aren’t any specific restrictions and conditions that apply (e.g., the number of loans that can be made on an individual account, repayment schedule terms, criteria for economic hardship withdrawals, etc.).
To minimize potential liabilities and avoid hefty fines, plan sponsors should carefully monitor those individuals within their organization involved in their plan’s administration. These individuals should be fully-trained and informed regarding all regulations governing employee benefit plans and adhere to them without exception. If problems in plan and/or document compliance are identified, they should be promptly addressed.
Many plan sponsors recognize the complexities involved in administering their organizations’ various benefit plans and turn to experienced third party administrators to take on this responsibility. Qualified third party administrators employ skilled benefit administrators, apply advanced technologies to facilitate accurate plan administration and documentation, and have in place proven systems to help ensure that all ERISA, Department of Labor and Internal Revenue Service regulations are being followed.