An employee benefit plan (EBP) is a significant investment. It’s critical to closely scrutinize areas of risk, compliance, and reporting requirements. When evaluating your plan’s operations, it is important to focus on ensuring that the plan is operating in accordance with the plan document and relevant rules and regulations. As auditors of more than 2,800 plans annually, our professionals have noted the following 10 issues commonly identified in EBP audits.
1. Timeliness of Remittances
Participant contributions must be remitted as soon as they can reasonably be segregated from sponsor assets. The 15th business day of the following month is not a safe harbor for remittance and represents only the latest permissible deadline under the regulations.
2. Definition of Plan Compensation
Eligible compensation for determining participant deferrals and employer contributions must be consistent with the plan document. Plan management should amend the plan document if necessary to reflect the intended operations of the plan.
3. Calculation of Participant Elective Deferrals
Elective deferrals must be made in accordance with participant elections. All election changes should be implemented and verified in a timely manner.
4. Eligibility & Vesting
Plan documents may define years of service differently for eligibility and vesting requirements. These definitions for eligibility and vesting should be reviewed and applied consistently with the plan document provisions.
5. Use of Forfeitures
Forfeitures should be used in accordance with the plan document in a timely manner. At a minimum, 401(k) forfeitures should be used by the end of the plan year following the year they occur, e.g., 2025 forfeitures by December 31, 2026.
6. Plan Oversight Meeting Minutes
It is important for those charged with plan governance to document what they do in relation to plan oversight. Our professionals recommend documenting plan amendments, investment elections, and compliance with the investment policy statement, expense assessments, enrollment practices, service provider performance, and any resulting actions on at least an annual basis.
7. Include All Eligible Employees
All eligible employees should be provided the opportunity to enroll in the plan. Work with your plan providers to employ methods to gauge employee eligibility, such as adding automatic enrollment. Consider all business units covered by the plan document when implementing an automatic enrollment provision.
8. Plan Amendments
It’s a requirement to amend the plan for legislative changes. Plan administrators are responsible for monitoring these changes, communicating them to participants, and, in most cases, taking action prior to the effective dates of new laws.
9. Nondiscrimination Tests
Actual Deferral Percentage (ADP), Actual Contribution Percentage (ACP), and other nondiscrimination tests need to be performed in a timely manner, and corrective qualified non-elective contributions and/or refunds of excess contributions need to be made as required by applicable regulatory requirements.
10. Participant Loan Repayments
Review the participant loan policy to make sure that payroll is properly set up to withhold and remit loan payments. Timing of remittance should mirror that of participant contributions.
How Forvis Mazars Can Help
A retirement plan is a vital component of an organization’s benefits strategy, and proactive oversight can help avoid costly errors and maintain compliance. Our experienced professionals focus on accounting and regulatory developments affecting qualified plans. We aim to go beyond compliance, digging deep to help identify issues and opportunities for improvement.
To learn more about these common audit issues or explore strategies to help strengthen your plan, reach out to the Employee Benefit Plan team at Forvis Mazars today.