This document discusses common errors made in employee benefit plans and provides guidance on corrections. It outlines issues such as late or incorrect calculations of contributions and distributions, failure to follow the plan document, and noncompliance with reporting and bonding requirements. Examples of contribution errors given include failing to use the plan's compensation definition and not calculating true-up contributions correctly. The document provides resources for determining how to correct errors and become compliant.

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Employee Benefit Plans – Common
Errors
Marshall Harvey, CPA, CFE | Assurance Principal

2.  Late contributions
 Incorrect calculation of contributions
 Incorrect calculation of distributions
 Failure to follow the plan document
 Noncompliance with fidelity bond requirements
 Noncompliance with ERISA reporting requirements
Common Plan Errors

3. IRS publication entitled “401(k) Plan Fix-It Guide”
includes common benefit plan mistakes and how to
find them, fix them and avoid them.
http://www.irs.gov/pub/irs-tege/401k_mistakes.pdf
IRS Guidance on Common Errors

4. Department of Labor requires plan sponsors to deposit
deferrals to the plan as soon as the funds can be
segregated; however, in no event later than the 15th
business day of the following month. The 15th business day
isn’t a safe harbor!
Consideration: 29 CFR 2510 includes an example of a large
plan whose contributions were received by the Plan within 3
business days of the issuance of paychecks.
Small plan only: DOL provides a 7 business day safe harbor
rule for employee contributions to small plans (fewer than
100 participants).
Timeliness of Contributions

5.  Considered a prohibited transaction
 For large plans, reported on Form 5500, Schedule H,
Part IV, line 4a, until the year after full correction
 Large plans require a supplemental schedule of
delinquent participant contributions in audited
financial statements
 For small plans, reported on Form 5500, Schedule I,
Part II, line 4a until the year after full correction.
 Reconcile plan contributions to payroll records each
payroll period and at year-end to identify and correct
issues early
Delinquent Participant Contributions

6.  Consult Rev. Proc. 2013-12 to determine if the error may
be corrected under either the Self Correction Program
(SCP)or Voluntary Fiduciary Correction Program (VFCP).
Available at: http://www.irs.gov/pub/irs-drop/rp-13-12.pdf
 Note that there are fees associated with correction under
VFCP
 Correction typically includes remitting the contributions
with lost earnings. A lost earnings calculator is available
at:
http://askebsa.dol.gov/VFCPCalculator/WebCalculator.as
px
 Correction may also require Form 5330 to be filed with an
excise tax payment
Correction of Delinquent Contributions

7. 1. Failure to utilize the plan document’s definition of
compensation when calculating contributions.
 Review plan document definition of compensation
 Review payroll system calculation to ensure
contributions are calculated properly
2. Employer’s failure to calculate “true-up”
contributions, if required by the Plan.
Incorrect Calculation of Contributions

8.  Plan document defines plan compensation as W-2
wages; however, no employee deferral is calculated
on auto allowances, or Christmas bonuses
 Plan document requires annual “true-up“
contributions of employer contributions remitted
each payroll period; however, employer fails to
calculate these annually. Employees who max out
deferrals before year-end will be underfunded.
Examples of contribution issues

9. Many plans rely on third-party administrators (TPA) to
calculate distribution payments. Are you providing
enough information to your TPA?
 Accurate census information is vital to employers
who utilize graduated vesting schedules
 Proper tracking of rehire dates may effect years of
service calculation
 Hours worked may be necessary in determining a
year of service
Incorrect Calculation of Distributions

10. If allowed by your plan document, IRS regulations
allow hardship distributions:
 because of an immediate and heavy financial need,
and
 limited to the amount necessary to satisfy that
financial need.
Hardship Distributions

11. A distribution is automatically considered to be
necessary to satisfy an immediate and heavy financial
need if all of the following requirements are met:
 The distribution is not greater than the amount of the
immediate and heavy financial need, including the
amounts necessary to pay any taxes resulting from
the distribution;
 The employee has obtained all other distributions
and loans available under the employer’s plans; and
 The employee is not allowed to make elective
deferrals to the plan for at least six months after a
hardship distribution.
IRS Hardship Distribution Safe Harbor

12. Review your plan document and related amendments
and be familiar with key plan provisions and how they
are being calculated, which may include:
 Definition of plan compensation
 Eligibility requirements
 Plan entry dates
 Vesting provisions
 Types of employer contributions, required or allowed
 Permitted types of distributions and loans
Failure to follow the plan document

13.  Consult Rev. Proc. 2013-12 to determine if the error
may be corrected under either the Self Correction
Program (SCP)or Voluntary Fiduciary Correction
Program (VFCP). A copy of the revenue procedure is
available at: http://www.irs.gov/pub/irs-drop/rp-13-
12.pdf
 Consider consulting an ERISA attorney
Corrections for failure to follow plan document

14.  ERISA section 412 and related regulations (29 C.F.R.
§ 2550.412-1 and 29 C.F.R. Part 2580) generally
require that every fiduciary of an employee benefit
plan and every person who handles funds or other
property of such a plan shall be bonded. A plan
official must be bonded for at least 10% of the
amount of funds he or she handles, subject to a
minimum bond amount of $1,000 per plan. In most
cases, the maximum bond amount required under
ERISA is $500,000 per plan; however, the maximum
required bond amount is $1,000,000 for plans that
hold employer securities.
Fidelity Bond Requirements

15.  The fidelity bond required under section 412 of
ERISA specifically insures a plan against losses due
to fraud or dishonesty by persons who handle plan
funds or other property.
 Fiduciary liability insurance generally insures the
plan against losses caused by breaches of fiduciary
responsibilities.
Fidelity Bond versus Fiduciary Liability
Insurance

16. Field Assistance Bulletin No. 2008-04 provides
additional guidance on ERISA Fidelity Bonding
Requirements and may be found at
http://www.dol.gov/ebsa/regs/fab2008-4.html
 The plan should be the named insured
 Deductibles are prohibited
 Must cover 10% of plan assets (up to required
maximum amount)
Fidelity Bond Issues

17. Common reporting requirements include:
 Summary Plan Description
 Summary Annual Report
 Summary of Material Modifications
 Plan Service Provider Fee Disclosures
There are many reporting and disclosure requirements with
differing deadlines. The Department of Labor has a
Reporting and Disclosure Guide for Employee Benefit Plans
that is available on their website at
http://www.dol.gov/ebsa/pdf/rdguide.pdf
Plan administrators should review the reporting
requirements and ensure that the plan is in compliance.
ERISA Reporting Requirements

18. Marshall Harvey, CPA, CFE
Assurance Principal
marshallharvey@decosimo.com
800.782.8382
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