When it comes to saving for retirement, your employees trust you to help them get their finances in order. Don’t undermine their trust by making mistakes that could have been easily avoided. Instead, take a proactive approach to the administrative responsibilities you are expected to manage. Keep reading to discover three areas retirement plan auditors are checking for mistakes and what you can do to avoid future issues.
Pay close attention to your plan’s eligibility requirements. The enrollment dates for some employees can get confusing. Consider the following example.
According to your plan document, in order for an employee to enroll in your company’s retirement plan, they must be at least 21-years-old and have had worked for you for at least six consecutive months. Once they have met these requirements, they can enroll during the plan’s entry dates, which fall on the first day of each quarter.
Considering this scenario, on what day will you be able to enroll “John” into your company’s retirement plan if:
- He was hired March 17, 2016
- His birthday is Oct. 25, 1995
While it’s true that John will meet the 6-month employment requirement on Sept. 17, he’s unable to meet the age requirement. When he turns 21 on Oct. 25, he will still have to wait until the first day of the next quarter – Jan. 1, 2017.
If an employee misses the opportunity to participate as a result of an error made by the plan sponsor, the employer is required to correct the mistake by making a corrective contribution.
This common mistake can easily be avoided as long as your business has solid processes in place to determine the appropriate for all new employees who are choosing to enter into the plan.
Even data entry gurus aren’t immune to making mistakes and, as many of us are already aware, it only takes a minor slipup to cause major havoc – especially where your plan contribution records are concerned.
When you manually enter your employee’s retirement plan contributions, you become vulnerable to data entry errors. It’s not uncommon for a wrong keystroke to lead to deposits being made into the wrong employee’s account, for example.
Fortunately, this mistake is easily avoidable if you take steps toward automation. Ask your payroll company if they can create a file that can be easily uploaded to your retirement plan’s record keeper in an automated format and save yourself any future data entry headaches.
It’s very important to be clear about what your plan document considers to be compensation. For example, if your plan document makes a point to reference “W-2 compensation,” you are required to withhold retirement plan funds from all regular wages, bonuses, commission, overtime, etc. This means, that if you pass out performance bonuses and neglect to withhold their 401(k) contribution, your document has failed and your business is opened to unpleasant consequences.
Fortunately, it’s not too late. Your plan document most likely offers the flexibility to make a separate plan election on bonuses. If your employee does decide to elect a portion of their bonus to the plan, ask them to document the election request for your records as well as their own.
Mistakes happen, but you can minimize the chance of making some pretty major mistakes simply by adopting a more proactive management style. The tips above will certainly help you get started. But for even more, email Rea & Associates today.
By Steve Renner, QKA (New Philadelphia office)