Common Mistakes to Avoid in Employee Benefit Plans
Whether you’re considering a new workplace health plan or making changes to a 401(k) you’ve offered for years, you’ll want to stay alert for errors that waste time and money.
Managing a plan can be a challenge for many businesses. Benefits are complex and if you make employee benefit plan mistakes, you risk incurring civil fines or criminal punishments for violating laws such as the Employee Retirement Income Security Act (ERISA) or the Employer Shared Responsibility Provision of the Affordable Care Act.
Don’t get caught endangering your company and employees by falling prey to these common employee benefit plan mistakes.
Failing to make timely employee retirement contribution deposits
As an employer, you’re responsible for depositing participants’ deferrals into the plan’s trust as soon as reasonably possible. The hard deadline to deposit these contributions is the fifteenth business day of the month after the contribution was deducted from the employee’s pay, but if the employer is able to accurately deposit the funds earlier, they are required to do so.
Businesses with fewer than 100 participants at the start of the plan year have a safe harbor period of seven days following withholding to make the deposit. However, the hard deadline for the deposit remains the fifteenth business day of the following month.
Learn more in The Fiduciary Responsibilities of Employee Benefit Plan Sponsors.
Making incorrect Individual Retirement Account (IRA) designations
Contributions to a Roth IRA and a traditional IRA are made differently. Yet, it’s common for plan administrators to designate an employee’s contributions incorrectly. For example, an employee might elect to place the money into a Roth IRA but an administrator assigns it as a traditional IRA (pre-tax) deferral instead. This can have significant tax implications for the plan and the employee.
Neglecting to notify participants of benefit plan changes
Employees have a right to know when there are changes in their plans. For instance, if you offer a 401(k), you must keep a Summary Plan Description (SPD) that outlines the rights and obligations of retirement plan participants. Whenever you make material changes to the plan terms outlined in that document, you must communicate those changes to participants.
Likewise, if your business makes material modifications to an employer-sponsored health plan, you’re required to give employees a 60-day notice.
Exposing sensitive employee data related to benefit plans
Cybersecurity is mission-critical for so many aspects of business—and one of those areas is personal employee information, which may be needed to manage retirement or health plans.
Protect your employees and your business by ensuring sensitive information is secure from data breaches and fraud. Keep these best practices in mind:
- Confirming security protocols are up-to-date;
- Developing policies regarding which employees, contractors, or service providers can access sensitive personnel information;
- Training relevant employees on cybersecurity best practices;
- Backing up data on a regular basis;
- Planning for disaster recovery.
Don’t let mistakes in your employee benefit plan cost your business time and money.
Simon Lever is a member of the AICPA Employee Benefit Plan Audit Quality Center. Our employee benefits team stays current on the latest regulations to help your company maintain compliance when managing benefit plans. Contact Simon Lever today to start the conversation.
By Rebecca S. Walck, CPA