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5 min read

Painless 401(k) Compliance in 2019? Avoid These 5 Mistakes.

Evan Ross
January 22, 2019
Painless 401(k) Compliance in 2019? Avoid These 5 Mistakes.
Table of contents

In a study of over 350 companies nationwide, we’ve found that the average company makes 53 payroll mistakes each year.*

If left unfixed, these mistakes can have some big ramifications – both in terms of compliance risk, as well as needless work during your annual audit. Luckily, they’re not impossible to avoid.

Today, we’ll walk you through 5 of the biggest 401(k) compliance mistakes we see plan sponsors make:

* Annualized results based on all active ForUsAll clients during August, 2018.

1. Missed Deferral Opportunity

A missed deferral opportunity (MDO) is when an eligible employee intends to make a deferral, but an administrative error prevents them from doing so. Fixing missed deferral opportunities can be really expensive. When these happen, you may have to compensate the employee for the amount they would’ve deferred, the employer match they would’ve earned, and the investment gains that would’ve resulted had the deferral been made on time. So, as you can imagine, the longer these accumulate, the more costly they’ll be.

2. Late Deposits

Late deposits are one of the most common problems that arise during the annual 401(k) audit. The Department of Labor mandates that deposits must be made “as soon as administratively feasible,” which really means as quickly as you’ve demonstrated to be possible. If the auditors determine that they’re not, you’ll have to compensate your employees for the earnings they would’ve had if the deposits had been made on time. You’ll also have to file Form 5330. And let’s be honest. You have enough forms to file.

3. Invalid Deferrals

If some of an employee’s paycheck is withheld when it’s not supposed to be (like if an ineligible employee is accidentally enrolled into the plan), that’s considered an invalid deferral. When this happens, you’ll have to run a payroll reversal with the recordkeeper, and also refund the withholding to the employee. There isn’t a compliance penalty for invalid deferrals – they’re mostly just a pain. However, if processing the correction takes too long, or if the employee is unhappy with your company, they may complain to the Department of Labor, which could trigger an audit.

4. Defaulted 401(k) Loan

This mistake can be really expensive. And frustrating. If a participant’s loan goes into default because you didn’t set up the repayment withholdings properly (if at all), your company will be responsible for paying back the entire loan on behalf of the participant. Meanwhile, the participant gets to keep the entire loan amount as a distribution. They do have to pay a 10% penalty on the distribution, but after that they get to keep it. So they get free money while your company pays back their loan. A nice gesture, but also an expensive one, so you’ll probably want to avoid it.

5. Failure to Send Notice

The fifth and final mistake is not oftentimes caught, but it can quickly spiral out of control and get you into big trouble. At various points of a plan’s operation – whether that’s at certain times of year or after certain plan events – there are certain notices that have to be sent. These are things like QDIA notices, eligibility alerts, and summary annual reports. If they’re not sent on time, or worse, if they’re not sent at all, that could mean BIG fines if the Department of Labor ever audits your plan. So make sure your census data is up-to-date in the recordkeeper, and that you have a process in place for ensuring that these notices are sent out on time.


And there you have it: 5 of the most common 401(k) compliance mistakes we see plan sponsors making. If you’d like to learn more about how to avoid these mistakes, we’d love to hear from you! Our all-in-one 401(k) platform handles administration and compliance for you! Schedule a quick, 10 minute demo today.

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Go beyond a basic 401(k)
Give your employees more than just a 401(k), join the movement.
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Evan Ross
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This material has been prepared for informational and educational purposes only and should not be construed as a recommendation by ForUsAll, Inc., its affiliates or employees (collectively, “ForUsAll”)  to activate a cryptocurrency window or invest in crypto.  Investing in crypto can be risky and investors must be able to afford to lose their entire investment.  You should consult with your own advisers before activating a cryptocurrency window or investing in crypto.  ForUsAll does not provide legal, tax, or accounting advice. Please refer to your Plan's fee disclosure for more details.© 2023 ForUsAll, Inc. All rights reserved.
1 Schwab 2022 401(k) Participant Study - Gen Z/Millenial Focus, October 2022.
2 As of 12/31/2022. Employees include both current employees and terminated participants with a balance.
3 "Morgan Stanley At Work: The Value of a Financial Advisor" Morgan Stanley, March 2022.
4 Sarah Britton was a client when she provided this testimonial through an independent third party review website. She received no compensation for her remarks. There are no known conflicts of interest in the provision of her comments related to the services provided.