Having worked with over 200 plans, including a large number of plans that were conversion plans (plans that already exist where we take over as the 401(k) advisor), we have noticed a lot of common errors. These are tactical errors that can cause compliance issues or poor participant experience. The list below includes some of the most common tactical 401(k) data-quality errors that we have found.
What are common 401(k) plan administration errors?
|Bad Participant Data||Incorrect/duplicate SSNs||If you have incorrect SSNs for your employees, the employee may have a hard time at tax season. This is because the tax return will be under the employee’s real SSN, and so when he or she reports income, the IRS will not be able to match the record. Usually the employer gets an email from the IRS that says you have someone with a SSN mismatch. This will also be a problem at your 401(k) website if you want to login or if you’d like to take a distribution because you will not be able to get verified.|
|Bad Participant Data||Placeholder birthdays||This common 401(k) error leads to the wrong target date fund selection, which means that the participant may get their savings invested in the wrong fund. One which does not match their age based risk/return profile. You may also have young employees who may or may not meet your plan’s age eligibility requirements, so having correct birthdays would be important.|
|Bad Participant Data||Incorrect hire dates||This data point is important for getting your employees’ eligibility periods right. You are legally required to follow your plan document, including making people eligible (and communicating with them as prescribed) based on their hire dates. This may also impact vesting if your plan includes a match that vests.|
|Bad Participant Data||Missing emails||Email notifications are allowed as a means to provide required 401(k) notifications, but plan sponsors should try to correct email addresses so that the proscribed communications can be correctly delivered to your participants – and so that you can drive high engagement with the benefit.|
|Bad Participant Data||Missing phone numbers||It is a great idea to be able to contact plan participants over phone if needed.|
|Eligibility||Incorrect eligibility status||This issue matters because tracking employee eligibility is difficult, especially if your company has a lot of employee turnover or if your company is growing. You are required by law to correctly make people eligible per your plan document, and also to provide communications on schedule.|
|Payroll||402(g) limit reached but participant is still contributing||Generally, you would expect your payroll provider to monitor each employee’s 401(k) contributions to ensure that no one is able to accidentally save more than the 402(g) limit. However, as we take on conversion plans, we have seen instances where employees have been allowed to over save, which will result in an unpleasant employee experience, potentially some fees being paid as money is taken from their retirement savings and unexpected taxes that your employee will have to pay.|
As a plan sponsor, you take on fiduciary responsibilities for your employees – some might say that you are an employee fiduciary. You need to think about both the investment side of the plan as well as the administrative responsibilities, and should actively seek to minimize plan administration errors.
We are proud to offer full ERISA 3(16) fiduciary services to take on the work and liability for administering your company’s 401(k). With payroll integration and recurring, automatic compliance checks, ForUsAll takes on everything from your plan’s daily operations to Form 5500 completion and signing so that you can lessen the risk and liability of these common 401(k) errors.