How compliant are your benefits packages? Not surprisingly, come time for the DOL audit if your benefits plans, including retirement plans, aren’t up to par, you’re looking at some consequences.
When your benefits packages and their reporting are audited, what do the DOL auditors look for? Well, there are obviously a number of things, but some of the most commonly caught are listed below.
1. Poor employee deferral payment practices
Late payments on your credit card hurts your credit score, failing to pay your utilities gets the electricity shut off. Likewise, it’s just as bad an idea to make late or erratic payments on employee deferrals.
Although the DOL says it has to be as soon as administratively possible, these payments must be paid no later than the 15th business day of the next month.
“The general rule of the Department of Labor states that employee deferrals must be remitted to the plan as of the earliest date on which these contributions can reasonably be segregated…”
2. Lack of attention to detail in contributions
Everyone makes mistakes, problems arise and oversights happen. But when it comes to 401(k) contributions, an oversight can get you into some audit trouble. These contributions have to follow the plan you’ve outlined and should be in accordance with employees’ instructions.
Breezing over your 401k could lead you to some audit trouble.
“If an operational defect does occur, both the Internal Revenue Service and the DOL have various correction programs available to help preserve the qualified tax status of your plan.”
3. Disregard for break-in-service rules
There are a lot of rules and regulations to remember surrounding retirement plans. Regardless if you choose a 401(k) or otherwise, you have to keep these rules in mind before the DOL audit.
For example, plans typically state when an employee leaves and are then rehired within a certain amount of time, they are eligible to participate in a 401(k) plan; regulations like this are sometimes forgotten.
4. More forfeiture accounts
It’s expected that not every employee will stay for the duration of their career. While it might be the hope of the company to retain all of their employees, outlying circumstances happen, and they leave.
When they do move on to other opportunities and forfeit their 401(k) balances, these balances aren’t always used as the plan outlined or in the time frame the IRS requires.
“401K plan forfeitures occur when a participant terminates employment(voluntarily or involuntarily) prior to satisfying the required Service Years to become fully vested in his/her account…The portion of an individual’s account subject to forfeitures is the portion that is contributed by the Employer, typically, through an Employer matching contribution, or an Employer discretionary profit sharing contribution.”
5. Incorrect tax withholdings
Occasionally employees will take some of their 401(k) earnings prior to age 59 ½, which they can legally do. However, these early withdrawals come with a price.
When members of the team do take distributions a bit too early, the tax withholdings, penalties and income taxes have to follow IRS standards.
Taking tax withholding distributions too early can result in a penalty you don’t want to handle.
“While you always get to keep your personal 401(k) deposits, you don’t get to keep your employer’s contributions until your vested in the plan. Retiring or leaving the company before you are fully vested means that you could forfeit some or all of your 401(k) match.”
While we understand mistakes happen, retirement plans are a piece of your benefits package that needs some of the utmost care. Pay attention to the details in the plan and the rules and regulations set by the IRS and the DOL in preparation for audits.
Retirement plans, even from the employer’s perspective can be a whirlwind of legal and financial jargon, but that’s what The Olson Group is here for. Get started with us to see how we can help you improve retirement plan compliance.