So, you’re a great employer that started an employee retirement plan to offer the added benefit to your employees. Of course you want to do the right thing to run your plan, but are you?
First, you need to start off with a retirement plan checklist:
- Has your plan document been updated within the past few years to reflect recent law changes?
- Are the plan’s operations based on the terms of the plan document?
- Are all eligible employees participating in the plan?
Answering “no” to any of these questions tells you that you may have a mistake in your plan.
One of the most common mistakes plan sponsors make is not making contributions properly. For small plans, (less than 100 employees) employee contributions are required to be remitted to the plan within 7 days of the payroll check date. For large plans, (greater than 100 employees) employee contributions must be remitted as administratively feasible. This is the most commonly misconstrued rule. What is administratively feasible? If you utilize the services of a payroll company, then the check date is your date. You are able to segregate the employee withholding that date and remit it, but if a Department Of Labor (DOL) auditor reviews it, anything later than 1-2 days would be considered late and you would need to pay penalties.
As a great employer already, you probably offer some form of employer contribution. How are you contributing that? And are you calculating it correctly? First, you need to determine that you are calculating the contribution correctly. Is it a match, or maybe a flat 3% of compensation? Make sure you are using the correct compensation. Employer contributions must be contributed by the date of the tax return; although, to ease case flow burdens, a lot of companies contribute on a per payroll basis.
What if you haven’t been handling contributions correctly? If you haven’t deposited employee contributions in a timely manner, usually these are corrected through the DOL’s Voluntary Fiduciary Correction Program. You must deposit all missing deferrals and earnings resulting from the late deposit. It’s not substantial if you are a week or even a month late, but if it gets to many months or even years, the earnings could add up and potential penalties await.
What if you didn’t realize you had an employer contribution related to your plan? Then you better catch up and review your service providers, because it was their responsibility to inform you. Did you make the mistake just in the past year? If so, then you can self-correct according to DOL guidelines. This means putting practices and procedures in plan to fix it going forward and contribute the missing amounts to the participants’ accounts as soon as possible.
What if you never submitted employer contributions to your plan? Most likely, you will need to go through the DOL’s Voluntary Fiduciary Correction Program. You will correct the mistake, but then also send a submission to the program and pay a fee. Going through the program allows you to get a “blessing” from the DOL that you have appropriately corrected, but the fees involved could be high.
The easiest thing to do is avoid mistakes. Be familiar with your plan document and make sure your personnel are operating the plan according to the document. Have a third party, such as your third party administrator or accountant, perform a compliance review on your plan to determine any mistakes and how to correct them.