servicing strategies | PLANADVISER May/June 2017

Avoidance Strategies

How advisers can help sponsors steer clear of common plan errors

By Judy Ward | May/June 2017
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Art by Rachel Jablonski

Plan sponsors sometimes get complacent and put their plans on autopilot operationally, says Lisa Tavares, a Washington, D.C.-based partner at law firm Venable LLP. So a disconnect may exist between a plan’s operations and what the plan document says, as well as what federal regulations require. That can lead to operational mistakes.

Sponsors run a risk when they remain oblivious to operational errors, Tavares says, and it is worth investing the time and effort in fixes—and, better yet, taking steps to prevent future errors. “Primarily, the incentive for sponsors is to make sure the plan is in compliance, before the IRS [Internal Revenue Service] or DOL [Department of Labor] gets to them, so the sponsor can mitigate any fines or penalties for the errors,” she says.

Preventing Four Typical Mistakes
The areas in which these mistakes generally occur fall outside the scope of retirement plan advisers’ typical role. Yet, being aware of your clients’ potential pain points can help keep from becoming real. Sources talked about four frequent errors and how to help sponsors prevent them:

• Late deferral deposits. Employers can find this tricky, as the DOL has no hard-and-fast rule saying they need to transfer their workers’ deferral money to their plan provider in X number of days, says Kimberly Moore, a partner at Summit CPA [Certified Public Accountant] Group—a firm that does retirement plan audits—in Fort Wayne, Indiana.

“What the DOL says is that, as soon as an employer can segregate that money from its payroll and get it to the plan’s provider, that is the employer’s timing,” she says. For small companies that do a single payroll run each pay period, that can mean one day. For a large company doing multiple payroll runs, that may take five to 10 days.

Where a problem arises is when no one at an employer understands the DOL requirement, or when the payroll staff member who does understand leaves the company. “I find that [often] in first-year plan audits or with a new client,” says Christopher Ciminera, manager—accounting and auditing, at Belfint, Lyons & Shuman, also a CPA firm that performs retirement plan audits, in Wilmington, Delaware.

The DOL wants to see an administrative pattern for contribution remittances, he says, adding that each employer needs to figure out when it can reasonably transfer the money. “If an employer can remit the withholding by the day following each payroll run, that is when an employer needs to do it,” he says. “Then, the employer needs to stick with that schedule.”