The Errors in One’s Ways

Although not involved in the day-to-day administration of a plan, advisers can help sponsor clients remain compliant with the rules of the Department of Labor (DOL) and the IRS. In making sure that a plan adheres to these rules, advisers will need to coordinate with the plan’s payroll provider, third-party administrator (TPA) and recordkeeper.

Many of those partners may offer “checklists and resources to help an adviser run all of the checks needed,” says Khash Sarrafi, senior vice president of Envestnet | Retirement Solutions. “There are also third-party reporting tools that advisers can use that provide the visibility needed into plan and participant activities by way of integrated data.”

One big mistake … is sponsors­ failing to make contributions and company matches on time.

The first principle for keeping plans on the rails is for advisers to religiously attend plan committee meetings and meet individually with the plan’s fiduciaries to discuss compliance deadlines and the big issues that the IRS and DOL have been finding in plans, says Carol Buckmann, co-founding partner at Cohen & Buckmann. Equipping the plan with compliance calendars goes hand in hand with this, she adds. “Many advisers will also conduct fiduciary education sessions, often with the help of an ERISA [Employee Retirement Income Security Act] attorney,” Buckmann says.

One big mistake, revealed on Form 5500, is sponsors failing to make contributions and company matches on time, Buckmann says. The adviser can assist by ensuring that the sponsor coordinates with the payroll provider and that the person responsible for the contributions has named a replacement if planning, say, to be on vacation, Buckmann says.

Another frequent sponsor error is failing to keep pay codes in the payroll system consistent with the right definition of compensation in the plan document, says Robyn Credico, defined contribution consulting leader, North America, at Willis Towers Watson. Both the contributions and payroll codes should be monitored to keep errors from creeping in, she says.

All eligible employees also must be given access to the retirement plan; whether the plan has achieved that can be reviewed through auditing plan eligibility on the human resources (HR), payroll and recordkeeping systems, Credico says. “What I often see is that people who should be automatically enrolled at a certain time aren’t being enrolled on time. Conversely, certain groups such as part-time employees, are sometimes mistakenly entered into the plan.”

Ensuring that loans and hardship withdrawals are being managed properly is best delegated to the recordkeeper, Credico says. Advisers, however, can “also make sure the sponsor’s HR and payroll systems are set up to sort repayments on time and stop them when the loan is paid off.”
Another common way to err is to fail nondiscrimination testing and have to issue refunds to the more highly paid employees, Buckmann says. For plans that frequently fail tests, advisers can tell the sponsor the benefits of moving to a safe harbor plan, she says.

Working with the TPA, advisers also need to conduct plan testing, which is complicated, says David Joffe, a partner and chair of the employee benefits and executive compensation practice group at legal firm Bradley in Nashville, Tennessee. “Advisers can help employers review and understand the testing results. If there are issues, the adviser can help employers change their plan design.”

“Better advisers make sure to proactively understand the terms of their clients’ plans and encourage the sponsor to conduct internal operational audits,” says Rachel Smith, a partner with Goodwin Law. These advisers take a sophisticated approach by creating alerts and a monitoring system in their clients’ information systems that will tell them when a mistake is being made, she adds.