Most Common Retirement Plan Mistakes

Running a defined contribution plan (DC) like a 401k plan is complicated fraught with many pitfalls. Service providers like record keepers, TPAs (third party administrators) and advisors are hired to help but ultimately, the employer sponsoring the DC plan is responsible and will suffer any consequences or penalties. So what are the most common mistakes made by DC plan sponsors?

According to an article in Investment News, common mistakes include:

1. Late deposits of contributions – This issue is the most popular reason the DOL fines a plan. The rule is no later than the 15^th day after but sooner if the funds can be segregated before. If the plan establishes a pattern, missing that deadline can cause red flags. Integrating the DC plan with payroll helps.
2. Not following plan documents –Don’t read your plan documents at your peril and don’t assume your service providers will insure you are following them. Mistakes include not including eligible employees especially if plans use auto enroll – issues with temp employees are very tricky and excluding them can be costly as a plan sponsor at a TPSU event found out.
3. Safe Harbor Plans – Notices have to go out annually 30-90 days before the end of the year.
4. Fidelity Bonds – All plans need bonds amounting to 10% of assets which should not be confused with fiduciary insurance.
5. Salary Limits – Employees may defer up to a certain percentage of their salary but only up to a certain limit.
6. Improper Loan Servicing – ensuring loan repayments adhere to repayment horizons and payment schedules.
7. Untimely 5500 Filings – Though most record keepers or TPAs provide signature ready 5500 forms, ultimately plan sponsors are responsible for timely and accurate filing of these forms.
8. Top Heavy Contributions – Making payments for “Key Employees” whose plan is “top-heavy” or where they hold more than 60% of a 401(k) plan’s total assets.

The key to running a clean DC plan without too much work or liability is hiring the right providers but making sure that these vendors are doing their job accurately and in a timely fashion, usually the role of the plan advisor, is still required.