Pension Plan Checklist: Finding, Fixing, and Avoiding Mistakes

In our recent post, “Checklist Manifesto”, we stressed the importance of using a checklist to avoid simple and costly errors. Continuing on with the topic, we’d like to provide you with a pension plan checklist to help keep your plan in compliance with the many rules and regulations that surround these documents. Below is a table that shows a few common mistakes, how to fix them, and how to avoid them in the future.

Mistake How To Fix It How To Avoid It
The plan has not been updated recently enough to reflect the latest changes in legislation. Review any recent changes in legislation that affect plan requirements. Implement amendments to your plan to make sure your plan meets the latest requirements. Reviewing the plan every year and staying informed with new legislation can help keep your plan up to date. See Notice 2014-77 for a report of the changes in 2014.
The plan’s operations fail to follow through on the terms of the plan document. Create and apply a method of correction that puts any affected parties in the position they would have been in if it wasn’t for the error in operation. Clear oversight procedures, combined with an annual plan audit performed by an independent CPA will help assure your plan is following what it’s designed to.
The plan’s definition of compensation is not used correctly for all deferrals and allocations. Make corrective contributions. Be sure the person in charge of compensation definitions has a good understanding of the plan definitions. For complex calculations, hire an independent professional.
The employer failed to contribute matching contributions according to the plan document. Create and apply a method of correction that will put the affected parties in the position they would have been if there were no errors in operation. Ensure the administrator has knowledge of matching formulas and payroll information. Assign the task of matching calculations to a competent individual.
The plan failed the 401(k) nondiscrimination tests. Make QNEC contributions for the non-highly compensated employees. Consider a safe harbor or automatic enrollment before the plan year. Monitor results during the year.
Eligible employees were not given the opportunity to make an elective deferral. Provide corrective contributions to compensate employees for the missed deferral opportunity. Establish a process to monitor census information and apply participation requirements.
Form 5500 was not filed on time or properly. File or correct as soon as possible. Assign responsibility to a specific individual for this filing requirement. Establish a timeline and monitoring procedure.
Other noncompliance issues – there are many other plan issues that require knowledge and expertise. Identify problems early and don’t try to hide mistakes. Every error has a means of correction. Assign responsibilities to a knowledgeable inside person or an independent expert.

This checklist is by no means comprehensive, and it cannot be used as a substitute for a plan review. If you’re unsure whether or not your plan is being properly managed, or have any questions regarding pension plans, Craig Morris & Company is here to help.

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