Ways Plan Sponsors Can Strengthen Their Employee Retirement Plans

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A retirement plan is an important investment in your employees’ futures and one that comes with significant responsibility for employers. To stay compliant with governing laws and regulations, plan sponsors need to implement effective internal controls. These measures help ensure that:

• Contributions are properly calculated and deposited.
• Participants receive the benefits to which they are entitled.
• Plan expenses are regularly reviewed.

In the broader picture, these controls also help protect your company’s assets, support accurate financial reporting and ensure efficient operations. Importantly, they also help surface emerging issues before they become larger compliance headaches.

Best Practices to Strengthen Retirement Plan Compliance

Effective controls start with a diligent and consistent approach that makes compliance an integral part of day-to-day operations. The following practical measures can strengthen your compliance framework:

• Deposit Employee Contributions and Loan Repayments on Time. If your retirement plan is subject to the Employee Retirement Income Security Act of 1974 (ERISA), you must make these deposits as soon as the funds are available. The last day to do this is the 15th business day of the following month, but if you can make the deposits earlier, you are bound to do so. To provide greater assurance around these deposits, you can:
  • Establish a regular remittance process.
  • Designate internal personnel as backup contacts who can make these payments in the event the usual team cannot.
  • Identify and address any delays following each payroll cycle by reviewing all deposit dates.

• Reconcile Payroll to Plan Records. Do employee contributions withheld from payroll agree with participant deferral elections? Are those election changes implemented in a timely manner? Sponsors should verify these processes are in place and accurate. As part of this, you should also:
  • Confirm that your company’s contributions are calculated and distributed according to the plan’s terms. Make sure to include any required true-up calculations.
  • Reconcile employee and company contributions to the amounts received by the plan’s trust and distributed to participant accounts (along with loan repayments if needed).
  • Designate a reviewer. Document completed reconciliations and any resolved discrepancies. Keep all related records.

• Review Plan Fees and Expenses. You’ll need to review the fees charged to the plan on a regular basis to assess whether they’re reasonable. We recommend you take these steps annually, if not more often:
  • Examine fee disclosures and agreements from service providers.
  • Ensure the accuracy of invoices and account deductions. Confirm that expenses paid from plan assets are appropriate and correct.
  • Document each review, including the reasoning behind your conclusions.
    
    
• Ensure Accurate Determinations for Eligibility and Vesting. To confirm that these determinations are correct and aligned with your company’s plan, you’ll need to review employee hire dates, hours of service, termination dates and rehire information. Your recordkeeper or third-party administrator will need you to confirm that service information is accurate and complete and that eligible employees are offered the plan within defined time periods. We also suggest reviewing vesting percentages prior to distributions to prevent incorrect payments or forfeitures.
  
  
• Monitor Contribution and Compensation Limits. We recommend monitoring these limits throughout the year. We advise clients to update their payroll and plan administration systems annually to reflect IRS limits, including those related to employee deferrals, catch-up contributions, total annual contributions and compensation. This also allows you to identify potential errors and address them promptly. As part of the process, ensure that your company’s payroll is correctly applying the plan’s definitions of eligible compensation, appropriate bonus treatment, overtime and other aspects.

• Implement Best Practices for Cybersecurity. Across the organization, data and information security has become a critical part of daily operations. To keep your plan and its assets secure, it’s important to regularly review who has access to plan systems and sensitive information. We recommend conducting this review at a quarterly cadence at least. After each review, promptly remove access for individuals and service providers who are no longer relevant. Other measures you can implement:
  • Require strong passwords and multifactor authentication across all access points
  • Periodically examine the cybersecurity practices of your plan’s service providers.

Take a Holistic View to Make Controls More Effective

Even if you have service providers that assist with plan administration, it’s up to you as a plan sponsor to maintain strong oversight and clear communication among them and your core functions: payroll, human resources, finance. It’s helpful to do a holistic review, examining each control in turn:

• Who is responsible for the control?
• How frequently does it need attention?
• Who reviews and documents the results?
• Where does that documentation live?

At each step, keep a record of the work performed and make sure to follow up on exceptions.

Contact Us

The Employee Benefit Services Group at PKF O’Connor Davies is available to assist plan sponsors in meeting the various compliance requirements applicable to their plans. We also provide a full spectrum of compliance services for qualified retirement plans, non-qualified deferred compensation plans and welfare plans. For more information, please contact your client services team or:

Timothy J. Desmond, CPA
Partner-in-Charge, Employee Benefit Services
tdesmond@pkfod.com | 551.249.1728

Louis F. LiBrandi, EA, CEBS, ChFC, TGPC
Partner
llibrandi@pkfod.com | 646.449.6327

Kathleen Bixler
Supervisor
kbixler@pkfod.com | 551.249.1142