Common Issues in Retirement Plan Audits
Posted on Monday, November 22, 2021
ShareIf you are a retirement plan sponsor, you are likely aware of the many nuances that are important to understand. Failure to understand these can lead to penalties and other time-consuming corrective actions. Below are some of the most common issues we come across in auditing retirement plans.
- Failing to understand and follow the plan document definition of compensation. Every plan document outlines which elements of compensation are used when determining employee and employer contributions. For example, bonuses, gift cards, third party sick pay and other forms of compensation may or may not be included in the definition of plan compensation.
- Late remittance of employee withholding. The Department of Labor (DOL) states that plan sponsors of large plans (plans that would be required to be audited) must remit employee withholding to the plan as soon as administratively possible. While it is also noted that this would be no later than the 15th day of the following calendar month, the DOL has been very clear that this is not a safe harbor. Plan sponsors should develop a process that allows them to consistently remit employee withholdings to the plan as quickly as possible. Often this is the same day the payroll is paid.
- Failure to properly follow participant withholding elections. These errors most often occur when a participant first enrolls in the plan or when they change their contributions. Plan sponsors should be diligent to ensure deferrals begin when the participant is able to enter the plan based on (1) the eligibility requirements specified in the plan document, (2) the entry dates specified in the plan document and (3) the participant’s election or the plan’s automatic enrollment policy. The plan sponsor should also have controls in place to ensure any participant requested changes are handled timely in accordance with the plan document.
- Improper vesting and forfeiture calculation. When a participant terminates employment and withdrawals funds from the plan, they should receive all their contributions plus gains or losses thereon and their vested portion of employer contributions with related gains or losses. Occasionally, the vested percentage is calculated improperly either due to an administrative error or failure to properly understand the vesting requirements in the plan document.
As noted above, a proper understanding of the plan document is key to avoiding many of these errors. For that reason, it is recommended that plan sponsors, plan administrators and others that handle plan related duties be thoroughly familiar with the plan document. Taking the time to gain this understanding will go far in helping the plan avoid these potential errors.
Contributed By: Chanda Blair, CPA | Senior Manager | DWD CPAs & Advisors
Posted in Employee Benefit Plan Audits
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