It’s more important than ever for employers to determine that their benefit plans adhere to Department of Labor and Internal Revenue Service regulations, as these regulatory bodies have become better at identifying businesses that fail to comply with fiduciary responsibilities. That means more and more benefit plan administrators are being hit with fines that can total up to $1,100 a day.
Plan fiduciaries are responsible for identifying what benefit plans must be audited under the Employee Retirement Income Security Act of 1974. This act mandated that ordinarily, plans with more than 100 eligible participants at the beginning of the plan year are required to be audited by an independent accountant.
The most common issue
The most common deficiency identified during independent audits relates to remittance of employee contributions. Plan fiduciaries are required to remit employee contributions to the Plan record keeper as soon as reasonably possible, and to adhere to the timeliness remittance on a consistent basis. Unfortunately, many Plan fiduciaries fail to comply with these guidelines, often from lack of awareness.
Participant contributions must be segregated from the company’s assets and deposited into the plan in a consistent expeditious manner to conform to the U.S. Department of Labor (DOL) regulations. With today’s technology, the ability to remit these contributions to the plan quickly is an expectation under these regulations. Ideally, these contributions would be deposited within three days of the payroll date. The DOL has demonstrated that it will penalize Plan sponsors who fail to consistently remit contributions as soon as reasonably possible.
Other common compliance missteps
Independent audits often reveal that fiduciaries may be out of compliance with a variety of other regulations as well. Some of the common compliance findings in audits include:
- Omission of required documentation for participant hardship distributions
- Failure to maintain sufficient fidelity bond coverage (a minimum of 10 percent of beginning-year plan assets with a ceiling of $500,000)
- An overall lack of awareness and/or performance of plan administrator fiduciary responsibilities relative to plan participants
- Lack of regular meetings to review plan operations and investment performance and failure to formally document those meetings
- Failure to document opt out elections
These problems typically result from the plan fiduciary’s challenges in both understanding and applying complicated regulatory guidelines. To help determine if your organization is in compliance with the law, contact LaPorte CPAs & Business Advisors’ Employee Benefit Plan Audit team.