Now that the ink has dried on your corporate tax return, it is time to consider your next important tax filing. If you sponsor a 401(k) plan with a December year-end, it is important to remember that your Form 5500 and audited financial statements, if required, are due July 31 with the option to file an extension, allowing an additional 2 ½ months to file.

Recently, the requirement that determines when audited financial statements are required changed. The Department of Labor (DOL) made changes in the method of counting participants to determine the 100-participant audit requirement threshold. Plans with less than 100 participants do not have to be audited by an independent qualified public accountant. Prior to the change, all eligible employees, even those who chose not to participate in the plan, were included in the count, while now only participants and beneficiaries who had account balances at the beginning of the year were included. The DOL expects this change to reduce the number of audits by 20,000 annually.

Maybe you recently learned that you no longer need an audit, have never needed an audit, or are counting on others in your organization to “handle” the audit and the plan. No matter what category you fall into, it is important to remember that if you are a fiduciary of the plan, it is still your responsibility to ensure that the plan is operating in compliance with all rules and regulations.

Fiduciaries are acting on behalf of participants and beneficiaries and according to the DOL, their responsibilities include:

  • Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them.
  • Carrying out their duties prudently.
  • Following the plan documents.
  • Diversifying plan investments; and
  • Paying only reasonable plan expenses.

Keeping Up With Your Responsibilities

Here are a couple of things to keep in mind to ensure that you are keeping up with your responsibilities:

Does your plan have adequate fidelity bond coverage?

Each plan official must be bonded in an amount equal to at least 10% of the amount of funds handled in the preceding year. The bond amount cannot, however, be less than $1,000, and the Department cannot require a plan official to be bonded for more than $500,000 ($1,000,000 for plans that hold employer securities).

Are you remitting employee contributions timely?

It is required that participant contributions be deposited in the plan as soon as it is reasonably possible to segregate them from the company’s assets, but no later than the 15th business day of the month following the payday. If employers can reasonably make the deposits sooner, they need to do so. For plans with fewer than 100 participants, contributions deposited with the plan no later than the 7th business day following withholding by the employer will be considered contributed in compliance with the law.

Are you protecting your employees’ assets and data?

Your retirement plan includes a massive amount of data about your participants. Are you protecting this data and ensuring information is being safeguarded? In April 2021, the DOL released guidance on cybersecurity best practices, including maintaining security frameworks, reducing cyber risks, and protecting retirement benefits. Are you following these best practices?

Have you hired qualified service providers?

Many plan sponsors think that since they have hired a well-known service provider, they have no additional responsibilities to the plan. However, that is not the case. Documenting your due diligence when selecting or changing service providers is essential. It is also important to monitor the service provider regularly. Are you aware of their cybersecurity policy? Are you reading their reports and reviewing their SOC 1? What is their fee structure, and who is paying the fees? How often do you meet with advisors to review the plan and its investments?

Is your plan following the terms of the plan Document?

First, have you adopted amendments for all recent tax law changes? Have you restated your plan documents in accordance with the restatement cycle? It is imperative to have current signed documents for your plan. Next, are you following all provisions of the plan? A common area where errors occur is in the definition of plan compensation. It is not uncommon to assume compensation used to base contributions on is correct only to dig into the documents and find that group term life insurance or demos are not being treated correctly. Also, new pay codes can get added and incorrectly set up in payroll. Are you sure bonuses and overtime are included in compensation? Who is monitoring this? Errors in compensation can be a costly fix for the plan sponsor.

Your 401(k) plan should not be a “set it and forget it” thing that you cross off your one-time “to-do” list. These plans involve constant monitoring, reviewing, and updating. Your employees are counting on you to protect their valuable assets!

Contact Us

For more information on this topic, please contact a member of Withum’s Employee Benefit Plan Services Team.