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Keeping Your 401(k) Plan in Compliance

October 2016
David Crisp, Senior Manager at Weyrich, Cronin & Sorra, Chartered, has approximately 15 years of public accounting experience and has worked extensively on audit, review, compilation and tax engagements in various industries including real estate, construction and non-profit organizations. Dave also provides audit services to employee benefit plans such as 401(k), Defined Benefit, ESOP and multiemployer plans. Dave joined the firm in 2001 and holds a Bachelor of Science Degree in Accounting from Stevenson University and a Masters in Business Administration from Loyola University Maryland. He is a member of the American Institute of Certified Public Accountants and the Maryland Association of Certified Public Accountants, is involved in numerous civic organizations, and currently serves as Treasurer for Habitat for Humanity Susquehanna.

David Crisp, Senior Manager at Weyrich, Cronin & Sorra, Chartered, has approximately 15 years of public accounting experience and has worked extensively on audit, review, compilation and tax engagements in various industries including real estate, construction and non-profit organizations. Dave also provides audit services to employee benefit plans such as 401(k), Defined Benefit, ESOP and multi-employer plans. Dave joined the firm in 2001 and holds a Bachelor of Science Degree in Accounting from Stevenson University and a Masters in Business Administration from Loyola University Maryland. He is a member of the American Institute of Certified Public Accountants and the Maryland Association of Certified Public Accountants, is involved in numerous civic organizations, and currently serves as Treasurer for Habitat for Humanity Susquehanna.

There are many benefits of a company-sponsored retirement plan such as a 401(k) plan. For the employer, it can improve employee retention and serve as a recruitment tool. For employees, it provides a valuable opportunity to save in a tax deferred manner. However, there are several common mistakes that plan sponsors often make that can result in penalties or even jeopardize the qualified nature of the plan. The Department of Labor (DOL) routinely performs audits of employee benefit plans, so it is important to make sure that your plan is compliant and to take corrective action before the DOL shows up. Here are some common pitfalls:

Timely Remittance of Employee Contributions
The rule here is different depending on whether the plan is a “large plan” or a “small plan.” The cutoff between the two is generally 100 participants at the beginning of the plan year. There is a safe harbor for small plans whereby the funds must be transmitted to the plan no later than the seventh business day following the paycheck date where the funds were withheld. However, there is no safe harbor rule for large plans. Large plans are required to remit employee deferrals on the “date on which contributions can reasonably be segregated from the employer’s general assets.” The DOL looks for consistency in this area. In other words, if during one pay period, the employee deferrals are remitted on the same day as payroll, and on the next pay period there is a 10-day delay, this is a problem because the plan sponsor has demonstrated that it is administratively feasible for them to remit the funds on the same day as payroll. This guidance is unclear to many plan sponsors, but basically it means as soon as it can be done, it should be done.

Document Retention
Employees should be informed of their eligibility to participate in the plan. Plan sponsors should be sure to maintain records relating to employee elections with regard to plan participation. Any changes to the amount employees want withheld from their check should be made in writing and retained in the employee’s file. Some custodians now allow for employees to make deferral percentage changes online. This practice is acceptable, but the payroll department should make sure to monitor these online changes and incorporate them into the payroll system in a timely fashion.

Definition of Compensation
The plan document defines plan compensation. Plan sponsors should refer to the plan document and make sure that the payroll department is withholding 401(k) deferrals on all eligible compensation. Plan documents vary in how they treat certain amounts such as bonuses, commissions, pre-tax deductions including health insurance, etc.

In Conclusion
Offering a retirement plan such as a 401(k) is a great benefit to employees. However, plan sponsors should make sure that the employees involved in the HR, payroll and accounting functions have an understanding of the rules to ensure that the plan remains in compliance with regulations. I95

Weyrich, Cronin & Sorra
410-339-6464
www.wcscpa.com

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