Courtesy of Yeo & Yeo
Your company has recently adopted an employee benefit plan. This is great news for your employees; however, do you understand your plan document? Too often, the plan administrator and HR personnel misunderstand the document’s provisions, resulting in compliance issues and frustration. Below are some key areas to review in your plan document to ensure you are following it appropriately:
1. Covered Employees
Ensure your plan has the appropriate group of employees covered that management intended to include when setting up the plan. For example, if you intend to exclude part-time employees from participating in the plan, ensure they are specifically excluded in the plan document. If they are not excluded, and you are not allowing them to participate in the plan, then you are not in compliance with your plan document.
2. Eligibility
Ensure that you understand the eligibility guidelines outlined in your plan document. For example, if your plan allows participants to enroll in the plan after three months, then ensure you have controls in place to make sure that these employees can participate after three months. Also, review your eligibility guidelines for both employee deferrals and employer contributions, as these may be different.
3. Plan Compensation
Plan compensation used in calculating employee and employer contribution amounts is an area we often see errors. Ensure that your payroll system is properly coded when calculating the plan compensation. A payroll report should identify all pay codes that are included and excluded in calculating employee and employer contributions, and this should be compared to your plan document. It is a good idea to run this on an annual basis, as pay codes may be added or modified during the year. For example, if your plan document does not exclude bonuses from plan compensation, then you need to ensure that your payroll system is calculating deferrals on all bonuses.
Fortunately, the plan document is never permanent. An amendment to the plan document can be created to modify the plan’s provisions and realign them with the company’s intentions. Make necessary amendments in a timely manner to ensure the plan remains in compliance. If you have additional questions on employee benefit plans contact Yeo & Yeo today.