Re-posted from DelphiaConsulting.com.
If you administer a qualified retirement plan (e.g., 401(k), 403(b), SEP, SIMPLE IRA, etc.) under the Internal Revenue Services’ (IRS’) guidelines you must adhere to rather stringent compliance requirements. Non-compliance with the IRS’ guidelines, can result in penalties and fines from audit findings or can ultimately result in the loss of your plan’s tax deferred status.
System functionality
Specific compliance requirements can differ by retirement plan type. However, there are general system functionality needs borne out of these compliance requirements that will exist no matter what specific type of plan is in place. These needs include the ability to:
- Determine when an employee is eligible to enroll in a plan.
- Determine when an employee is vested.
- Identify which earnings meet the plan’s definition for “compensation.”
- Calculate contributions to a specific employee’s account via elective deferral (withholding) and employer contribution (matching, safe harbor).
- Monitor annual contribution and compensation limits set by the IRS.
- Perform annual testing to determine if the plan adheres to rules as defined in the plan’s document.
- Monitor payments made toward an employee’s loan taken against his/her retirement account.
While you may have engaged with a plan administrator to assist with monitoring your adherence to plan requirements, ultimately, the onus of compliance rests with the employer. Further, your employer’s HRMS system serves as the system of record for data needed to monitor compliance.
Complying with the IRS
The IRS has published a multitude of resources to assist employers with their compliance efforts. These documents recommend strong internal controls around the management of qualified retirement plans to provide assurance that the plans are operating properly. The IRS has also published fix-it guides based on plan design to guide employers in self-correcting issues as they are identified along with tips to assist employers in preventing these issues.
Some scenarios where you may be not adhering to IRS regulations can occur when:
- Eligibility for participation was not properly defined.
- Compensation when calculating employee contribution or employer match are not properly defined.
- A plan fails to meet certain non-discrimination tests.
- Minimum contributions weren’t made in accordance with plan requirements.
- Elective deferrals exceed limitations as required by the IRS.
- Compensation ceilings were not adhered to when calculating elective deferrals.
- Age requirements were not adhered to for catch-up contributions.
Leveraging the right tool set
There are a number of opportunities with the Sage HRMS suite of tools to assist with 401(k) compliance and reporting. Some of the modules and tools you might use include: Sage HRMS HR Actions, Advanced Employer Match, Crystal Reports and Sage HRMS Alerts and Workflow. Here are a few methods to consider:
Activity | Method |
Determine when an employee is eligible to enroll in a plan. |
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Identify which earnings meet the plan’s definition for “compensation” in payroll. |
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Calculate contributions to a specific employee’s account via:
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Handle special employer match calculations and employer match eligibility requirements. | Use Advanced Employer Match for Sage HRMS to:
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Monitor annual contribution and compensation limits set by the IRS. |
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Perform annual testing to determine if the plan adheres to rules as defined in the plan’s document. |
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Monitor payments made toward an employee’s loan taken against his/her retirement account. |
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