Will Your Retirement Plan for Employees Pass the Audit Test?HR Resource
February 28, 2014 — 2,217 views
Employers need to be extra cautious while implementing benefit schemes for employees, because some of them may not comply with the new 1974 Employee Retirement Income Security Act (ERISA) rules. In 2013, the Department of Labor (DOL) found that 75 per cent of plans they audited were fined, or had to reimburse for errors made.
Heavy Price to Pay
This is why it is important that each employer should get a comprehensive review of their 401(k) plan so as to minimize chances of litigation or be aware of regulations in place. The fines and penalties can prove to be costly as last year’s average fine of $600,000 per plan exemplifies. Also, 88 persons were indicted for 401(k) offenses, the DOL points out, adding that the Department collected fines to the tune of $1.69 billion last year.
The DOL has hired 1,000 new employees to serve as watchdogs and enforce ERISA regulations and issue fines to employers who have made violations. If you are an employer who is offering a 401(k) plan, you should hire a professional to assess it and keep some errors spotted by authorities in mind.
Common Plan Errors
A very common mistake that employers make is to keep some kinds of compensation such as payment of bonus, overtime or vacation out, when they are charting out an investment plan (retirement program) for employees. Some transactions are prohibited under the law to avoid transactions with those who are in positions where they could affect the plan negatively. The prohibited parties are the employer, those involved in operating a plan, service providers and the union, among others.
Some examples of prohibited transactions include a sale, lease or exchange between interested party and the plan, and lending money or extending credit between the plan and party in interest. There are prohibitions imposed on fiduciaries that use the assets of the plan for self-interest or who play a role on both sides of the plan transaction. The DOL keeps an eye on these prohibited transactions, so be careful not to indulge in any. The other common error spotted is providing wrong asset valuation and plan sponsors can get into trouble for this.
Responsibilities of an Employer
As an employer, make sure that the fiduciaries you have marked out for the plan are clear about their responsibilities. You should also help plan participants with information so they can make informed decisions about their accounts. As an employer, don’t forget to document the hiring process, in case you are looking at third-party service providers for your plan.