401(k) plans are highly regulated and have many rules as found in the Employee Retirement Income Security Act (ERISA). It can be difficult to keep your plan in line with ERISA regulations, but the following suggestions can help.
ERISA requires that a 401(k) plan must operate according to its plan documents. Understanding the plan documents prior to making administrative decisions is critical. To ensure your understanding of the plan aligns with the plan documents, consult with your service provider to clarify any hard to follow language. Also verify with your service provider if there have been any updates to the plan document as new laws impacting 401(k) plans are constantly being passed.
A specific area of a 401(k) plan that can cause trouble is the definition of eligible compensation. This is used for calculating employee and employer contributions into the plan. Careful review of the plan document is necessary. For example, if the plan document includes bonuses as eligible compensation, be sure that contributions are being made on bonuses.
Another common issue is the timeliness of payroll contributions to the plan. You should have procedures in place to ensure contributions are made as soon as reasonably possible once payroll has been processed. There is no requirement that contributions be remitted the same day as payroll is processed or even the next day. Contributions must be remitted as soon as reasonably possible given the circumstances. It is important to be consistent throughout the year.
Lastly, newly eligible employees must be notified about the plan and instructed on how they can enroll. Have a plan for how and when they will be notified. Newly eligible employees should be notified well before they become eligible, giving them the ability to participate in the plan as soon as they become eligible.
While this is not an exhaustive list of all the potential issues in a 401(k) plan, following these suggestions can go a long way in keeping you in line with ERISA regulations. Do you have any questions? Please don’t hesitate to contact a Henry+Horne professional to assist you.