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401(k) Wrap-Up – Automation and Integration: Keeping Your Employee Benefit Plans Compliant

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If you manage your employer’s plans, you know the employee benefit plan compliance audit season is about to wrap-up. Before you celebrate, it is important to remember that beyond fiduciary duties, the overwhelming movement to online-hosted plans poses a new set of issues that traditionally-run plans did not have to consider. Chief among these is the presence of ‘automatic’ features. Automatic enrollment and deferral increases let employees begin saving for retirement and, in theory, streamline the participation process. In reality, these automatic features need to be checked regularly to ensure they are operating effectively. Robert Burns’ adapted axiom “the best laid plans of mice and men often go awry” is never more evident than with the age of automation.

If your plan has provisions to increase individuals on the first day of the plan year, set a calendar reminder immediately after the New Year to check affected individuals. A simple calendar notification can save future headaches with your compliance audits or any U.S. Department of Labor (DOL) investigations.  Other repetitive or calculated functions, like payroll calculations, can lull us into a sense of complacency without giving these items any further attention. Save yourself the frustration and monitor these functions on a regular basis.

Another way to combat errors is to review deduction and pay codes periodically with outsourced payroll providers.  This analysis safeguards against the risk of certain compensation types from omission in deferral calculations.  It is important to do this intermittently and specifically anytime you switch providers to ensure payroll systems are both properly designed to remit payroll accurately and to calculate deferrals correctly.

It is often assumed that payroll systems are integrated with your benefit plans, which is not always the case. Double checking and making sure integration exists is worth your time. If your payroll system and your benefit plan are not unified, conduct manual reviews of any annual automatic enrollment and contribution increases. This should also take place when updating your payroll system to comply with your plan provisions.

401k plans can serve as a great vehicle to encourage retirement saving, provide an opportunity to give back to your employees with matching contributions, and act as a valuable recruitment tool. Through the integration of technology and use of automated features, they also carry significant compliance risks as plans shift to a completely digital environment. As online dependency grows, staying vigilant on the terms and conditions of your plan and how effectively the chosen provisions of the plans are implemented are key to meeting your compliance requirements.

The Department of Labor also keeps a Fiduciary Guide which provides short, “plain English” explanations and tips on administering your plan properly. And if you ever have additional questions or problems arise, consider working with a CPA who is familiar with these plans and the regulations they carry.

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