Avoidance Strategies (planadviser.com)

Chris Ciminera, CPA, QKA was quoted in Avoidance Strategies: How advisers can help sponsors steer clear of common plan errors by Judy Ward (planadviser.com)

SEE ALSO >>> Employee Benefit Plan Audit Services


Preventing Four Typical Mistakes

The areas in which these mistakes generally occur fall outside the scope of retirement plan advisers’ typical role. Yet, being aware of your clients’ potential pain points can help keep from becoming real. Sources talked about four frequent errors and how to help sponsors prevent them:

  • Late deferral deposits.


Where a problem arises is when no one at an employer understands the DOL requirement, or when the payroll staff member who does understand leaves the company. “I find that [often] in first-year plan audits or with a new client,” says Christopher Ciminera, manager—accounting and auditing, at Belfint, Lyons & Shuman, also a CPA firm that performs retirement plan audits, in Wilmington, Delaware.

The DOL wants to see an administrative pattern for contribution remittances, he says, adding that each employer needs to figure out when it can reasonably transfer the money. “If an employer can remit the withholding by the day following each payroll run, that is when an employer needs to do it,” he says. “Then, the employer needs to stick with that schedule.”

  • Incorrect compensation definition.


  • Eligibility snafus.

A plan document defines the conditions by which an employee becomes eligible for the 401(k) plan, but, in a plan’s ongoing operations, that rule is not always adhered to. “That’s one we see frequently on plan audits,” Ciminera says.

A relatively new employee may cross the threshold of having worked enough hours to be eligible for enrollment but not get offered that option, for instance. “It might be an issue of someone not understanding the rules in the plan document on eligible and ineligible employees,” he says. “Employers should make sure that the HR [human resources] department or payroll department—whoever is tracking employees—knows exactly when each new employee will become eligible to enter the plan,” he says. “Review that definition, identify and track those employees, and communicate to them when they become eligible to enter the plan.”


  • Loan and hardship problems.


Sponsors need to collaborate with their third-party administrator (TPA) or recordkeeper to ensure the timeliness of loan-repayment withholdings, Ciminera says. “When a loan is taken, plan sponsors should know when to start the repayment withholding and when to stop the withholding. That is something an employer should keep track of internally, even on a spreadsheet,” he says. “Ultimately, it’s the plan sponsor’s responsibility to make sure it’s done correctly.”


Broader Preventative Steps
Advisers also can help sponsors take several broader steps to avoid problems:

  • Perform operational reviews. Ideally, sponsors should review their plan operations at least annually, Ciminera advises. “Print out the plan document, and do a thorough review of it. Then review all administrative processes the employer has in place to implement the plan provisions,” he says. “And maybe make a chart listing each of those plan-related processes: Who is doing what? And when?”




SEE ALSO >>> Employee Benefit Plan Audit Services and Chris Ciminera, CPA, QKA