Periodic checkups with a physician are a good thing; they can provide reassurance that all is well and sometimes identify problems so they can be addressed and health restored forlong-term vitality. Much the same can be said of checkups of employee benefit plans, observes a recent blog entry.
In “Is it Time for Your Employee Benefit Plan Check-up?” Kriste DeAngelo and Brenda DeSaro of the auditing and consulting firm EisnerAmper argue that employers should apply the same principle to their benefit plans. “Having a good physician makes a big difference in a patient maintaining good health. The same logic applies to an employee benefit plan,” they write. “Much like encouraging your employees to have annual check-ups to remain healthy, you should do the same for your employee benefit plan.”
According to DeAngelo and DeSaro, “A best practice is to schedule a periodic review of your plan, at least annually, to make sure it complies with any changes in laws or regulations.” They add that plan provisions also should be examined in order to verify that they are being applied appropriately in day-to-day operations.
DeAngelo and DeSaro identify three symptoms of noncompliance that may indicate that a plan is not healthy:
- Failure to use the correct definition of compensation as defined in the plan document.
- Outsourcing the determination of eligibility. “This can only be completed accurately by having the correct employee population,” they write, adding that they usually find the following errors: (1) allowing participants who are excluded per the plan provisions, such as part-time or temporary employees; (2) allowing participants to enter the plan prior to meeting the eligibility requirements, such as age or service requirements; (3) not allowing eligible participants into the plan in a timely manner; and (4) not following the eligibility provisions regarding elective deferrals, employer matches and discretionary contributions.
- Untimely employee contributions.
DeAngelo and DeSaro suggest additional best practices they argue can help a benefit plan to be healthy:
- Identify plan fiduciaries and clearly designate their responsibilities.
- Determine whether the plan needs one committee, or more than one. “Plans often have an administrative committee and an investment committee, each with their own set of bylaws that must be understood and executed,” they observe.
- Provide annual fiduciary training.
- Meet regularly; document all decisions regarding plan operation and investment decisions.
- Hire qualified third-party providers as necessary such as a custodian, record keeper, investment advisor, ERISA attorney and auditor.
- Regularly review and document all providers.
- Be aware if the plan requires an audit.
- Calculate headcount. “We often see plans that have filed a Form 5500 that should include an auditor’s report, but have failed to do so because plan managers simply did not know the rules and were not monitoring employee headcount,” they observe. And they warn: “Calculating headcount can complex if you do not understand how to determine the audit requirement,” further remarking, “Plan sponsors often incorrectly calculate participant numbers because they do not understand the definition of ‘eligible’ [participants].”