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Ensuring ERISA Compliance: 3 Common Plan Mistakes

ERISA complianceEstablishing an employee retirement plan not only helps your employees (and you) save for retirement, but may also offer favorable tax benefits. Yet, despite best intentions, plan errors can happen which can jeopardize that critical tax-favored status. Below, we’ll answer some common questions many plan sponsors have: Why do retirement plan errors happen?  How can businesses ensure ERISA compliance? What are some ways to minimize the risk of being audited?

ERISA Compliance

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for employee benefit plans maintained by private-sector employers. ERISA includes requirements for both retirement plans (401(k) plans) and welfare benefit plans (group health plans). The Department of Labor (DOL), through its Employee Benefits Security Administration (EBSA), enforces most of the ERISA compliance provisions.

Why Do Retirement Plan Errors Happen?

Whether it’s because the plan sponsor has so much on their plate that standards inevitably fall through the cracks or that internal record-keeping systems just aren’t set up as efficiently as they should be, plan errors can happen for a number of reasons. Here are a few key considerations:

  • Eligibility. Timeliness is key when it comes to employee eligibility and participation. Ensure eligible employees are allowed to participate in the plan on time.
  • Plan Document. Documentation is everything. Benefit payments, loans, participant eligibility, etc. are all governed by the rules set forth in the plan document and must be followed.
  • Monitoring of Fees and Services. There are many services provided to a plan and its participants that can be paid out of plan assets. It is the Plan Administrator’s fiduciary responsibility to monitor and benchmark these services and associated fees to ensure their reasonableness.

How Can Businesses Ensure ERISA Compliance?

ERISA compliance applies to most private-sector employers, regardless of their company size. This includes corporations, partnerships, limited liability companies, sole proprietorships and nonprofit organizations. The only exemptions include employee benefit plans maintained by governmental employers as well as church plans.

Therefore, it is in any company’s best interest to do what they can to ensure ERISA compliance. While employers are often not making mistakes deliberately, things can still go wrong. Increase fiduciary oversight, ensure ERISA compliance and minimize the risk of being audited by hiring an ERISA 3(16) Plan Administrator, which takes over the responsibilities listed above and assumes most  of the fiduciary responsibility associated with the plan administration.

Are You “Audit-Ready”?

Put in the time now by following preventative measures to minimize risk and prevent violations. To get “audit-ready,” employers must ensure that documentation and procedures are set in place to completely support ERISA compliance. For example, regularly conduct compliance reviews on any issues that are likely to be targeted for an audit such as verification that each employee has received a copy of the Summary Plan Document (SPD) and timely deposits of employee deferrals.

Proactively correcting compliance concerns prior to a DOL audit will help to expedite the audit process and avoid many steep penalties. In addition, retain the necessary documentation to support compliance and prove diligent processes.

“An ounce of prevention is worth a pound of cure.” ~Benjamin Franklin

Ensure ERISA Compliance with NPPG-FS

The more organized and prepared a plan sponsor can be in advance, the more efficiently things can be resolved in the event a plan is selected for an audit. Whether large or small, employers who provide retirement plans have a fiduciary responsibility to maintain ERISA compliance.

As one of the only retirement plan fiduciary firms that offers independent ERISA 3(16) Administrative Fiduciary Services NPPG-FS works with most third-party administrators and recordkeepers to help lighten the load of fiduciary responsibilities associated with day-to-day retirement plan management,  ensure compliance, and  alleviate the burden of liability risks to the plan sponsor. More than a service provider or broker, NPPG and NPPG-FS operate as your trusted partner.

Your Needs. Our Experts. Call us at 732.758.1577 or contact us online to learn more.

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