What Could Go Wrong?
The Employee Retirement Income Security Act (ERISA) establishes participants’ rights and is enforced by the U.S. Department of Labor. ERISA is a federal law that sets minimum standards for most voluntarily established pension plans. ERISA requires plans to:
- Provide plan information including important information about plan features and funding to participants;
- Set minimum standards for participation, vesting, benefit accrual and funding;
- As a result, plan sponsors should be aware of the rules and regulations that impact plan operations and administration.
Most Common Mistakes
The plan document has not been updated within the past few years to reflect recent law changes. Your plan document should be reviewed annually. You should also maintain regular contact with the company that provides all plan documents to ensure they remain in compliance with current rules and regulations.
Incorrect use of the plan’s definition of compensation for all deferrals and allocations. The plan sponsor should perform annual reviews to ensure that the person in charge of determining compensation used to determine plan contributions is trained to understand the plan document. To correct mistakes consider making a corrective contribution or distribution.
Employer matching contributions were not made to all eligible employees. The Plan Administrator should ensure that plan provisions related to employer matching contributions are in compliance based on employment and payroll records. If errors occur, you may need to apply a correction method that would place adversely affected participants in the position they would have been originally if there had been no operational plan defects.
Eligible employees were not given the opportunity to make an elective deferral election. Census information should be monitored and participation requirements applied. To correct this mistake the plan sponsor should make a qualified nonelective contribution that compensates the employee for the missed deferral opportunity.
Employee elective deferrals have not been timely deposited. To avoid this mistake the Plan Administrator should determine the earliest date deferral amounts can reasonably be segregated from general assets of the Company. Procedures should be put in place to ensure that deposits are made by that day. If errors occur they typically are corrected through the Department of Labor’s Voluntary Fiduciary Correction Program. The correction includes depositing into the plan’s trust all elective deferrals and earnings resulting from the late deposits.
Plan Administrators should contact their service providers to assist with any necessary corrections in a timely manner. There are time limits within which corrections may be made without an Internal Revenue Service filing that results in additional fees.