Managing a 401(k) plan involves meticulous attention to detail; even small administrative errors can lead to costly corrections. In the latest 401(k)ompass episode, Lindsay Luketic highlights two frequent pitfalls in plan administration: improper payroll source withholding and inaccurate tracking of vesting and eligibility. Here, we talk more about these issues and provide you with practical strategies to help avoid them.
Improper Payroll Source Withholding
Many plan sponsors overlook the importance of accurately withholding deferrals from payroll sources such as bonuses and overtime. If your plan specifies that deferrals should be included or excluded from these sources, failing to comply can result in expensive corrections. Ensuring proper setup and clear guidelines for payroll processing is crucial to avoid these costly mistakes.
Incorrect Tracking of Vesting and Eligibility
Another common error is failing to correctly track vesting and eligibility. This often happens due to manual errors or inadequate system setups. Automation can significantly reduce these mistakes by ensuring that vesting schedules and eligibility criteria are consistently applied. Working closely with your record keeper and payroll provider to implement these automations can help maintain accuracy and efficiency in your 401(k) plan administration.
Benefits of Automation
Automation plays an important role in minimizing these and other administrative errors. By automating payroll processing and tracking systems, plan sponsors can help to ensure compliance and reduce the likelihood of costly corrections. It also frees up valuable time and resources, allowing you to focus on other critical aspects of plan management.
To Sum it Up
Proper setup and strategic use of automation are essential for effective 401(k) plan administration. By addressing common pitfalls, plan sponsors can safeguard their plans from costly corrections and enhance overall efficiency.
