If you’ve ever put together even one piece of Ikea furniture, you know the importance of sticking to the plan. The directions are not merely a suggestion, they are imperative. Plans provide clarity, give you confidence, and create consistent results.
Veer from the plan while building a bookshelf, and you end up with unusable furniture. Veer from the plan while administering an employee benefit plan and the consequences can be much higher.
According to Scott D. Michael, a financial advisor with Savant Wealth Management in his recent discussion of common fiduciary errors, misinterpreting a plan document provision is “possibly the most frequent” reason behind fiduciary breaches. But with such complicated data and requirements involved in an employee benefit plan, it can be easy to inadvertently make an error.
A common error found during audits of employee benefit plans is the misinterpretation of the definition of “eligible compensation”. Frequently, the definition found in the plan document and used by the payroll department do not agree, leading to missed or excess employee deferrals withheld from an employee’s paycheck and employer contributions. These operational errors require correction and may result in fines and penalties to the plan sponsor.
The plan document is designed to be followed closely to avoid operational errors. There are things you can do as a plan sponsor, to make sure the plan administrator follows the plan.
The National Association of Plan Advisors* recommends the following:
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- Service Providers: Hire competent providers and follow their instructions.
- Documentation: Implement documented practices and procedures. Consider creating a fiduciary checklist and/or a compliance calendar.
- Compensation: The administration of compensation should be periodically reviewed to ensure it’s consistent with changes that are made to the plan document.
- Check Data: It may be useful to have double checks in place for all data being submitted or reviewed.
- Education: Keep plan sponsors educated on their roles and responsibilities. Resources are available through the DOL and the IRS at (include link)
- Federal Correction Tools: There are tools available to help correct errors and reduce risk of fines and penalties. Including:
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- Department of Labor’s Delinquent Filer Voluntary Compliance Program
- Department of Labor’s Voluntary Fiduciary Correction Program
- IRS Employee Plans Compliance Resolution System (EPCRS)
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Navigating plan documents can be complicated. We are here to help.
*https://www.napa-net.org/news-info/daily-news/follow-plan-stan-document