top 5 mistakes that plan sponsors make - maryann geary
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B P A S P A R T N E R C O N F E R E N C E 2 0 1 6
Top 5 Mistakes that Plan Sponsors MakeMaryann GearyCPC, ERPA, Executive Vice President, BPAS Plan Administration
B P A S P A R T N E R C O N F E R E N C E 2 0 1 6
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Late Deferrals
We all know the rule:• Amounts deducted from a participant’s account must
be paid to the trust on the earliest date they can be segregated from the employer’s general assets
• Safe harbor for plans with fewer than 100 participants – remittance deadline is the 7th business day following the day on which the amount would have been payable to the employee
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2016 BPAS Partner Conference
When/Why Do Plans Experience a Failure?
• Employee embezzles money• Payroll/HR asleep at the wheel• Employee on leave or vacation
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2016 BPAS Partner Conference
How Do We Correct the Failure?
• Employer makes contributions with earnings up to the date of correction
• DFVC application should be filed and describe procedures to prevent the error from recurring
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2016 BPAS Partner Conference
The BPAS Difference
Delinquent Contribution Notification• We remind the plan sponsor when an
expected contribution has not been made
• When we ACH the contribution it is “segregated from the employer’s general assets.”
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2016 BPAS Partner Conference
Compensation Errors
• Amount of plan benefits or contributions frequently expressed as percent of compensation
• IRC establishes a maximum compensation limitation each year
• Plan definition of compensation must be nondiscriminatory under Code §414(s)
• Terms of the plan document must be followed
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2016 BPAS Partner Conference
• Plan allocation is based on compensation that exceeds the limit
• Improper exclusion of bonuses, overtime, commissions or another element of compensation from base on which employees may make elective deferrals
• Improper deferral on items not included in plan definition of compensation
• Compensation fails the 414(s) test and is deemed to be discriminatory
When/Why Do Plans Experience a Failure?
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How Do We Correct the Failure?
• It depends on why the failure occurred and how many participants are affected
• Usually correction involves allocating additional amounts to employees
• Option to “re-allocate” the contribution• Earnings may need to be made up
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2016 BPAS Partner Conference
The BPAS Difference
• We recommend that the Plan Sponsor review the definition of compensation with internal systems and personnel on an annual basis
• We include the plan’s definition of compensation on the Annual Employer questionnaire
• We include the plans’ definition of compensation in the Annual Executive Summary email
• We perform required compensation testing
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2016 BPAS Partner Conference
Plan Loan Failures
For a plan loan to qualify as a non-taxable distribution, it must meet certain IRC requirements:
• Maximum amount of loan • Repayable within 5 years with exception for
certain home loans• Level amortization and not less than quarterly
payments
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• Failure to deduct participant loan repayments – Payroll changes– Compensation changes
• Failure to correctly handle defaulted loans• Failure to adhere to loan limitations• Failure to adhere to repayment period
When/Why Do Plans Experience a Failure?
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2016 BPAS Partner Conference
How Do We Correct the Failure?
• Under EPCRS, the IRS offers several correction methods for loan failures
• The correction methods often have a financial impact for the employee and the plan sponsor– Potential tax implications for the employee– Plan Sponsor may be liable for the interest on
missed loan payments
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2016 BPAS Partner Conference
The BPAS Difference
• Loan reports are posted regularly indicating new loans issued, loans nearing default and loans nearing payoff
• MyPlanLoan– Outsource loan administration– BPAS works directly with the participant on
repayments– We track defaults
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2016 BPAS Partner Conference
Eligibility Failures
• In general, employees must be allowed to participate in a qualified plan if:
• They have attained age 21 and• They have at least 1 year of service
• The plan document stipulates the eligibility requirements for the plan and the entry date for employees that have satisfied the eligibility requirements
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2016 BPAS Partner Conference
• Employer permits employees who have not met its 401(k) plan’s eligibility conditions to become participants
• Employer fails to enroll employees that have met the eligibility requirements
• Employer fails to offer participation in the plan to a division or another company within the controlled group
When/Why Do Plans Experience a Failure?
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How Do We Correct the Failure?
Two alternatives for including ineligible employees:• If prematurely included employees are primarily
NHCE, employer may file VCP submission requesting that plan be retroactively amended to permit their participation. Impact of amendment must not be discriminatory
• Distribute improper employee deferrals and notify them of their taxability
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2016 BPAS Partner Conference
How Do We Correct the Failure?
Alternatives for excluding Eligible Employees• Offer the plan to the employee currently• Make up any missed contributions, including
deferrals, if applicable, plus earnings• Reallocate any contributions made to original
group eligible for a contribution plus the excluded employee
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2016 BPAS Partner Conference
The BPAS Difference
• We collect full census with each contribution which enables BPAS to determine the entry date for each money source
• Post reports to the web, listing employees eligible for the next two entry dates
• BPAS collects information regarding related entities to determine whether the employees of such entity are eligible for the plan
• We discuss feasibility in the conversion process
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2016 BPAS Partner Conference
Forfeiture Accounts
• The non-vested portion of a participant’s account is placed in the forfeiture account according to the timing requirements in the Plan Document
• The Plan Document governs the timing and the methodology in which forfeitures are used
• Failing to follow the Plan Document is a qualification failure
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When/Why Does the Failure Occur?
• Plan sponsors feel that they “own” this money
• Out of sight is out of mind!
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How Do We Correct?
• Ensure that the plan document allows maximum flexibility for the use of forfeitures
• Annually review the forfeiture account and use the forfeitures according to the terms of the plan document
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2016 BPAS Partner Conference
The BPAS Difference
• BPAS ensures that the forfeiture account is disposed of in accordance with the plan terms
• Amount in the forfeiture account detailed in the annual executive summary
• BPAS allows plan sponsors to reduce the employer matching contribution, if allowed in the plan document, with each contribution
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