When it comes to managing employee benefit plans, even the smallest oversight can result in costly penalties, wasted resources, and damaged employee trust. Compliance isn’t just about staying on the right side of the law—it’s about showing your employees that you prioritize their financial well-being.
Here are the top five red flags every business owner must watch out for—and how to avoid them.
1. Late Deposit of Employee Contributions.
Timing is everything when it comes to employee contributions. The Department of Labor (DOL) expects these funds to be deposited promptly—often within seven days for small plans. Missing the deadline can lead to penalties and corrective actions.
Pro Tip: Automate the deposit process to ensure contributions reach the plan on time, every time.
2. Mismatched Payroll Data and Plan Contributions.
Does your payroll data match the contributions to your employee benefit plan? For example, did an employee opt for a 5% deferral but only 3% reach the plan? Any inconsistency here is a compliance disaster waiting to happen.
Pro Tip: Reconcile payroll and plan data monthly to catch discrepancies before they escalate.
3. Failure to Follow Plan Terms.
Your plan document is more than just paperwork—it’s the rulebook that governs your benefit plan. Ignoring its terms, such as eligibility rules or contribution formulas, can lead to costly operational errors.
Pro Tip: Conduct regular reviews to ensure your team understands and follows the plan terms to the letter.
4. Improper Handling of Participant Loans.
Loans are a common feature of employee benefit plans, but mishandling them can have serious consequences. Loans exceeding $50,000 or missed payments can result in taxable contributions for participants—and a compliance nightmare for you.
Pro Tip: Monitor all participant loan activity closely and double-check adherence to IRS rules.
5. Errors in Form 5500 Filing.
Form 5500 is a critical compliance document, and mistakes here are a big red flag. Common errors include inconsistent schedules or missing attachments, such as the independent auditor’s report.
Pro Tip: Review every line of your Form 5500 and cross-check it with plan financials before submission. If you’re unsure, bring in a professional to audit the form.
How to Stay Ahead of Compliance Issues
Compliance doesn’t have to be overwhelming. With a little preparation and the right tools, you can avoid costly mistakes:
- Create a compliance calendar. Schedule deadlines for audits, filings, and deposits to keep your team on track.
- Conduct internal reviews. Regular check-ins with payroll and HR teams can catch and correct small issues before they grow.
- Engage experts. Partnering with professionals who specialize in employee benefit plan compliance can save you time, money, and stress.
At Boris Benic and Associates, we help businesses stay ahead of compliance challenges. With expertise in employee benefits audits and a commitment to delivering results, we’re here to make sure your plan runs smoothly.