Learn About the Common Mistakes Retirement Plan Sponsors Can Make and How to Avoid Them
Retirement plan sponsorship is not as easy as it sounds. If not done properly, it can cost you and your employees time, fees, and headaches. Many mistakes can occur when sponsoring a retirement savings plan for your employees. However, the following six mistakes tend to be the most common mistakes employers make as they work to help employees save for retirement.
- Ensuring Payroll Is Accurate
Retirement savings are based on payroll. When payroll is not accurate, retirement savings plans are inaccurate. The inaccuracies may result in high fees, fines, and legal complications. More importantly, different types of compensations, such as bonuses and overtime, may add complications to the allowable contributions to a retirement savings plan. For instance, bonuses are separate from standard payroll and do not include tax-deductible retirement savings plan deductions. Any issues relating to payroll can create additional room for error for retirement savings planning.
2. Ensuring Employees are Eligible
Depending on your company’s rules and eligibility requirements, employees may not be eligible to participate in your retirement savings plans when they begin working for the company. Further, part-time employees may not be eligible to participate in your plans. Determining the eligibility of employees is essential to ensuring your retirement savings plans are maintained.
Federal laws may also affect eligibility rules for employees. For instance, the Secure Act 2.0 states that as of January 2024, employees working 500 hours for three consecutive years are eligible to participate in a 401(k) plan. Therefore, as an employer sponsor of a retirement savings plan, you may need to adjust your company’s eligibility requirements to match those of the federal law.
3. Addressing Over-Contributions
The IRS sets annual contribution limits for retirement savings plan. Employees cannot contribute more than these set limits each year. Over-contributions will result in employee contributions being returned with tax complications. These issues lead to extra work and even confusion for both employers and employees.
4. Ensuring Investment Changes and Updates Are Smooth and Seamless
Sometimes, employers must make changes to investments. They must add or remove types of retirement savings plan options in favor of more lucrative options. However, the process is complex. Each retirement savings plan has its own nuances that can be difficult to follow. These issues can result in employees and employers losing money to fees in the long run.
5. Following Protocol for Distributing Notices
The laws require employees to receive notices regarding their retirement savings plan in a particular manner. The process can be overwhelming, especially when an employer is busy with other company-related tasks. However, if these notices do not follow the proper protocols, the employer can get hit with fines and legal filings. Therefore, this is a task that must be completed accurately and on time.
6. Ensuring Plan Options Follow Regulatory and Legislative Updates
Tax laws and investment laws change regularly. They can change quarterly, semi-annually, and annually. Not knowing about the change does not excuse an employer from fines and legal filings. Therefore, it is essential that plan sponsors understand the updates and implement any regulatory and legislative updates as required.
Conclusion
As an employer, it is easy to make a mistake when handling the responsibilities of running a business and running a retirement savings plan option. Working with a retirement planning advisor can help you ensure these common mistakes and other mistakes while managing your company’s retirement savings plan options. Contact the retirement planning specialists at Retirement Plan Services Group to help you avoid costly fees and legal filings due to errors made when managing a retirement savings plan for your business. Call Scott Tanker at 609-922-0201 or email scott.tanker@pbsrep.com.