Mistakes to Avoid in Plan Administration

Of course, laws and regulations, as well as fiduciary duty, spell responsibilities that must be fulfilled. But sometimes what one does not do is as important as what one does, an industry expert reminds. 

It is helpful to not only know what to do but also what to avoid, argues Mark Olsen, Managing Director at PlanPILOT, in “The Top 5 Mistakes I See Plan Sponsor Make.” Plan administration is the focus of the first of a two-part series concerning the most common mistakes plan sponsors make.

Failing to benchmark and review the plan. Regular benchmarking and review of a retirement plan can help avoid the risks posed by holding to a set strategy in a financial environment that is anything by static, Olsen suggests. Failing to benchmark and review a plan can negatively affect plan beneficiaries by resulting in higher fees and lower returns.

Rather than stand pat, Olsen suggests benchmarking and reviewing a plan regularly, perhaps every three to five years. 

Not making remittances of employee deferrals on time. Late employee remittances can violate regulatory requirements—which is bad enough—but there are more negative effects than that, Olsen points out. Failing to be on time with them can: 

• attract the attention of regulators;
• result in penalties for the plan and plan sponsor;
• reduce employees’ trust in the plan; and 
• hurt employees’ future financial stability. 

Failures concerning employee eligibility. It is not unusual to see instances in which the eligibility criteria for employee participation in a plan are misinterpreted or overlooked, Olsen says. The consequences of this can be: 

• legal ramifications for the plan;
• employee dissatisfaction and mistrust; and 
• missed opportunities for employees.

Mistakes with plan committees. Mistakes with plan committees are common, Olsen observes. These can include: 

• not holding regular committee meetings; and 
• not documenting discussions held, decisions made, and action plans formed at committee meetings.

These failures, says Olsen, reduce accountability and can result in inconsistency and misunderstanding—which, in turn, makes meetings less effective and can even entail legal risks. 

Another mistake concerning plan committees, Olsen warns, is to have a committee so narrowly constituted that it cannot take advantage of the multiplicity of thought and experience offered by a variety of professional and personal backgrounds, ages, and viewpoints.