Red Flags and Warning Signs: Operations Edition
Summer is fast approaching - if you’ve got an employer-sponsored retirement plan, you should be done with compliance testing (or at least very, very close to finishing), and your 5500 will be due in just a couple of months. Now is a good time to take a closer look at the operations side of your retirement plan and check for any red flags or warning signs that it needs a tune-up.
Signs of Operations Issues
So what are some signs that your retirement plan needs extra attention with your advisor?
1. Compliance data problems
Are you still working through data issues from last year, trying to get numbers to tie back to each other? Your third-party administrator might have numbers that don’t match the payroll system numbers or the recordkeeper’s deposits. If so, this is a warning sign of underlying operations issues.
A likely cause is a problem with the payroll connection (or no payroll connection); another possibility is an issue with how the payroll is being administered. But, is your plan set up for success with a reasonable compensation definition? It’s tough to say where it starts.
If your compliance data or testing was a mess to work through, that is a big red flag - you need to take a good hard look at the operational side of your retirement plan and make sure everything is functioning as effectively and efficiently as it should. We help our clients dig in and figure out a better way so this doesn’t happen next year.
What this looks like IRL:
We have some additional questions from the review of the census spreadsheet you submitted.
Please verify the hire dates for the employees listed below. The most recent census data differs from what is already on file.
There are 8 participants with a difference between census contribution amounts and trust deposit amounts.
2. An increase in the plan’s administrative burden
Are you scaling up or scaling down? Both can create more plan administrative burden – unless you have someone looking out for this who can catch the warning signs in advance. Keep in mind that complex plan designs with lots of features can be cumbersome and expensive to administer, especially during high growth periods. Surprisingly, downsizing can result in greater administrative burden in the short term.
Summer is a great time to address this so you have time to course correct before year-end. We help our clients look strategically at the business direction to see if the plan is still in a good position.
What this looks like IRL:
We’re hiring 40 new employees. What needs to be done to get them in the 401k?
We have 29 employees that we had to cut due to the loss of the contract they were on. Does this qualify for a partial plan termination? What do we need to do?
The census didn’t used to take this long to compile in the past but I have to go through line by line and pull each date by hand now. It’s so much work!
I think we want to exclude non-eligible wages for the compensation period for all matching contributions including safe harbor. But are you telling me I’d have to provide those compensation numbers for all new employees as well?
3. Frequent errors in plan administration
If you’re making mistakes that result in you having to go back and amend the plan document, that’s a warning sign that the plan design isn’t right for your company. It could be overly complicated, outdated, or you’ve simply outgrown it. Take action to ensure any mistakes you’ve made don’t happen again. We help our clients simplify by streamlining technology and finding the source cause of errors (personnel, plan design, interpretation, systems problems, business changes, and so on) to avoid more mistakes in the future.
What this looks like IRL:
As a result of 2023 testing, our compliance dept identified that a person was let in one day too soon to the plan. The eligibility is 6 months and then the month following to enter. This employee was let in at 6 months. While the payroll ended that day, the contributions cannot be accepted.
The auditor pointed out that our adoption agreement says they can enter at any time after they’ve been here a month but the recordkeeping system can only enter the employees on the first of the month. We have to fix a number of new employees from last year.
Our TPA representative told us the eligibility was one year. They had us refund contributions and forfeit matching for several participants for the last 2 years. Now it appears they were working from a different version of the plan adoption agreement that wasn’t current. What do we do now? Is this our fault or theirs?
Getting Advisor Support
Here are some things your advisor should help you with if you do have red flags. And if they’re not, come to us.
Figuring out the source(s) of problems: Unless you know where the problems are coming from, you can’t fix them! Don’t opt for a band-aid. Fix it for good.
Looking at the recordkeeper relationship: We have seen in some cases that the relationship with the recordkeeper isn’t what it used to be, and the quality of service has deteriorated. An advisor can support you by getting additional help from the recordkeeper’s back office or the right relationship manager.
Looking to the future and planning strategically: Can your retirement plan operations support changes in staff size? When does the plan break the budget? Your advisor should weigh in on what you need in workflow and staffing.
In short, working with a good plan advisor (like us!) can ease the burden on understaffed, overstretched HR, and provide the operational support you need. They can help you by determining the best ways to support the plan, take care of your employees, and avoid (or fix) mistakes.
If you see any red flags or warning signs with your retirement plan, now is the time to work on them – don’t wait until the frenzy of year-end! And if you have questions about the operations aspect of your retirement plan, reach out at hello@retirementplanology.com or contact us through our website at https://www.retirementplanology.com/ask-us.