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.