Another year has passed, and if you have over 100 eligible participants in your employee benefit plan, it is once again time to start thinking about your upcoming employee benefit plan financial statement audit. In order to ensure compliance with Department of Labor (“DOL “) regulations and make the audit run
efficiently, the following are five key areas on which to focus:
1) Total Wages: Total wages per the plan sponsor’s payroll records as reported on the Form W-3 should agree to the total wages in the employee census used by the plan’s administrator for the discrimination tests. It is important that the total wages agree so that the discrimination tests can be performed accurately. It should be noted that there are some allowable wage exclusions which may be adjusted by the plan administrator. A reconciliation of these allowable exclusions should be made to reconcile the wages used in the plan administrator’s discrimination tests to the plan sponsor’s payroll records (i.e. the W-3.)
2) Compensation Definition: The plan document states the types of compensation that should be considered by the plan sponsor when processing withholdings. Sometimes the definition of compensation per the plan document is not consistent with actual payroll practices. For example, the plan document may indicate that all compensation is considered when calculating employee withholdings; however, in practice, the plan sponsor may not withhold contributions on commissions, vacation pay, bonuses, etc. What happens in practice should match the plan document to avoid any potential legal liabilities that could arise with participants.
3) Negative Enrollment Forms: Negative enrollment forms should be kept on file. It is important to have such forms especially if your plan automatically includes all employees unless they opt out. If your plan does not automatically include all employees, it is still good practice to have these forms to prove that the employee was made aware of their eligibility.
4) Remittance of Withholdings: Employee withholdings should be remitted to the plan’s asset custodian in a timely manner consistent with the Department of Labor’s rules. The Department of Labor states that the withholdings should be remitted as soon as they are reasonably segregated from the plan sponsor’s funds.
5) Matching Contributions: Employer matching contributions should be calculated in accordance with the plan document. The most common calculation methods are based on either wages per “payroll period” or per “plan year”. The selection of one instead of the other may result in different matching amounts. Therefore, careful consideration should be given to the method chosen to make sure the calculations are correct. In recent years, the Department of Labor has been increasing the number of audits that they perform on employee benefit plans. Any inaccuracies could result in penalties and fines assessed against the plan sponsor. Therefore, it is important to be diligent and review your plan document to ensure that you are complying with all rules and regulations. The areas highlighted above can help you successfully complete the annual assessment of your plan.
