Employee Benefit Plan Guide for Plan Administrators – Part 2: Common Contribution Considerations
Have you ever wondered what the auditors of your employee benefit plan (EBP) are doing all day? We’re about to let you in on a little secret!
Operating an EBP requires a variety of significant processes. One such process includes ensuring the Employer applies all contributions on a timely basis. In addition, verifying each participant receives the correct amount. Therefore, plan auditors’ test the accuracy and timeliness of contributions. Employers are required to make contributions in accordance with their Plan Document. In addition, employers have to meet ERISA, DOL, and IRS guidelines. During our audits of 50+ EBPs, the Delap team has seen it all. Following are some suggestions for ensuring compliance related to contributions:
Ensure all eligible employees are allowed into the Plan
Ensure all ineligible employees are excluded from the Plan. Eligibility requirements for employer contributions can differ from those for employee deferrals. Be sure to review the Plan Document eligibility requirements for each contribution type.
Consider retaining documentation supporting participants’ elections.
Implement a review process verifying that participant deferrals are withheld from payroll. Ensure deferrals are applied to the correct participant’s account.
Consider an annual review of total contributions by participant
This review helps verify:
- No contributions exceeded the applicable IRS limits.
- All employees with catch-up contributions have reached the required age.
- Only eligible employees received contributions.
Many employers rely on a third-party administrator to help perform this analysis. However, remember that it is the plan administrator’s fiduciary responsibility!
Be aware of the most common compensation definitions used
One of the most common errors relates to the definition of compensation. Differences often occur in the Plan Document’s definition of compensation and the definition used for calculating employee and employer contributions. These include W-2 wages and section 3401 compensation. Additionally, Plan Documents may exclude other types of compensation. These exclusions often relate to bonuses, severance pay, and other incentive pay. Review your Plan Document’s definition of compensation before calculating employee or employer contributions.
The DOL sets a maximum deadline for participant deferrals to be remitted to the Plan. The employer has until the 15th business day of the month after the funds were withheld. The rule also requires the remittance of employee deferrals “as soon as reasonably possible.” Many employers generally remit deferrals within 3-4 days after payroll. In that case, the DOL could consider anything longer to be late. Late remittances generally require disclosure in the form 5500. An additional schedule is attached to the financial statements. The employer is also required to take corrective action to replace the “lost earnings.”
There are many challenging aspects of processing EBP contributions. Our EBP team has many years of experience auditing various plans. We assist in interpreting Plan Documents, advising plan administrators, and helping implement best practices for plan operations. If you have any questions regarding your Plan, our Delap team members would love to help you. Please contact us today!
Hopefully, the issues identified help you better understand your own Plan Document. Our team at Delap has extensive experience with a variety of Plans. We would love to help you through any questions you might have regarding your plan. Please email or call us today at 503-697-4118 to discuss eradicating employee benefit plan eligibility errors!
Editors note: This post was originally published February 2018 and has been revamped and updated for accuracy and comprehensiveness.
Delap Employee Benefit Plan Guide for Plan Administrators