The stress and complications from a Department of Labor (DOL) 401k audit can be debilitating to a small company. Unraveling compliance problems from the past for financial and HR professionals who inherit their organization’s 401k plan or other defined contribution (DC) plan can be daunting. The CFO of a not-for-profit attending a TPSU program held at Virginia Tech describes how the issues he inherited led to a DOL 401k audit and how he handled them.
Before the CFO came on board, the company had just crossed the 100-person threshold triggering the need for a 401k audit which also alerted the company of eligibility issues. In fact, they found that some employees were being improperly excluded.
Over a three-month period, the company gathered all the data necessary calculating who was improperly excluded and how much was owed based on missed deferrals and matches. They also found that some employees were getting too much which led to credibility.
Though difficult, the process was not fatal and, with the help of their TPA (third party administrator), attorney and auditor, they resolved the problems and have instituted checks and balances between the HR department and payroll to make sure the problems don’t happen again.
Lessons learned? It’s very typical that turnover of the previous DC plan administrator leaves a gap in knowledge leaving new administrators who wear many hats to figure out what has happened. That’s why it’s essential to have proactive providers like TPAs, advisors and record keepers as well as auditors to fill in the gaps and understand the history of the plan. Proactive is key – you want a security guard who, when a problem arises acts, not a security monitor who may just alert you.
Additionally, the 360-degree integration of payroll with 401k and 403b plans is essential not just for compliance reasons but also to allow for implementation of auto features within the Ideal Plan. Make sure you ask your record keeper for this integration with your payroll vendor and, if not available, you might consider making a change.
Finally, read your plan documents not just to make sure that practices are in sync but also to determine if there is a need for amendments.
