Avoiding Costly Mistakes in 401(k) Plan Administration: Tips for Employers
Overseeing a 401(k) plan requires careful attention to detail, as even minor missteps can lead to significant costs. In the latest 401(k)ompass episode, Derek Burrow sheds light on two major challenges employers often face: participant loan administration and compliance with annual deadlines. Here’s a closer look at these issues and some practical solutions to help you avoid them.
Managing Participant Loan Repayments
One common issue with 401(k) plans is participant loan administration. If loan repayments aren’t handled correctly, they can fall off their repayment schedules, leading to compliance issues for the company and its employees. Some businesses address this by working with their record keeper to have loan repayments automatically deducted from participants’ bank accounts, bypassing payroll. While not all record keepers offer this option, it’s worth considering to prevent repayment errors.
Staying Ahead of Annual Testing Deadlines
Missing deadlines for required annual testing or 5500 filings is another area that can create headaches for plan administrators. If you fall behind, correcting the issue can be costly and time-consuming. Derek shares a story of one client who had to make retroactive corrections due to discrepancies in census data after an acquisition. Planning ahead and staying on top of deadlines is crucial to maintaining compliance and avoiding last-minute scrambling.
The Importance of Early Preparation
Proactive planning is key to avoiding common 401(k) administration problems. By setting up processes to handle participant loans and filing requirements ahead of time, companies can reduce the risk of non-compliance and improve overall plan efficiency.
