Best Practices in 401(k) Plan Administration
By Blake C. Adams, MBA, CPFA
Let’s talk about best practices in 401(k) plan administration. We are approaching the time of year when many companies undergo an annual audit of their 401(k) plan. Even if an audit is not required of your company’s 401(k) plan, this is a great time to review the plan and ensure your fiduciary responsibility is being met and the plan is functioning as designed.
Benefit plans can have many different options and features, so a good working knowledge of the plan document and adoption agreement is essential for plan administration. Having an understanding of your plan rules and features can help avoid common mistakes, like the following:
• Failure to follow the definition of compensation – Are bonuses, fringe benefits, or other types of pay included or excluded?
• Failure to remit employee contributions timely – Are remittances being done as soon as administratively possible following payroll?
• Inadvertently including or excluding someone from the plan – Are, part-time, or union employees eligible or ineligible?
• Failure to follow service requirements – Is there an age, hour, or service minimum?
• Failure to follow matching or profit-sharing requirements – Is there a minimum of hours worked or employment status required to be eligible?
• Failure to maintain supportive records of elections & changes – Does each new enrollment and/or a change in status, deferral rate, etc. have supporting documentation in the employee’s personnel record?
Corrective actions to remedy these issues can be costly and time-consuming. Additionally, the effects of incorrectly calculating employer matching or profit-sharing contributions may cause a change in your indirect rates, the costs specifically associated with performing on a particular project – including labor and materials required to do that job, which adds another headache. It’s also good practice to review the features of your plan regularly and discuss whether any updates are needed.
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Let us take the worry out of offering an employee retirement plan so you can focus on your business. Learn more about our retirement plan services. Together, we can help you elevate your business with comprehensive solutions that meet all your financial needs.