Top 5 Administrative Failures in Employer-Sponsored Retirement Plans and How to Prevent Them
Managing an employer-sponsored retirement plan can be complex, and even well-intentioned plan sponsors can encounter administrative failures. Here are the top five common failures and practical suggestions to prevent them:
1. Failure to Follow Plan Terms
Failure: Not adhering to the specific terms outlined in the plan document, such as compensation definitions or eligibility criteria. Prevention: Regularly review and understand the plan document. Ensure clear communication between HR, payroll, and plan administrators.
2. Missed Enrollment of Eligible Employees
Failure: Failing to enroll eligible employees in the plan, leading to missed contributions and potential compliance issues. Prevention: Implement automated enrollment processes and conduct periodic audits to ensure all eligible employees are enrolled.
3. Incorrect Loan Repayments
Failure: Not properly withholding or collecting loan repayments, resulting in defaulted loans and potential tax penalties. Prevention: Establish robust loan administration procedures and regularly monitor loan repayments to ensure compliance.
4. Late RMDs (Required Minimum Distributions)
Failure: Failing to distribute the required minimum amounts to participants who have reached the age for RMDs, leading to penalties. Prevention: Set up automated reminders and tracking systems to ensure timely distributions.
5. Inconsistent Record-Keeping
Failure: Inaccurate or incomplete record-keeping, which can lead to errors in contributions, distributions, and compliance testing. Prevention: Maintain meticulous records and conduct regular audits to ensure accuracy and completeness.
By addressing these common administrative failures, plan sponsors can enhance the efficiency and compliance of their retirement plans, ultimately benefiting both the employer and the employees.
Scott Higgins | AIF ®, CFP®,CPFA®, NSSA®
Financial Advisor
Since 2012 at Rose Street, Scott has been responsible for helping the firm’s individual wealth management clients with income strategies for retirement and consulting with employers with their employee retirement plans. In free time, he enjoys golf, biking, skiing, cooking, and traveling. Fun Fact, Scott has a hobby of filling growlers with coins!