Introduction

For HR teams, the end of the year often means wrangling end-of-year payroll, planning out headcounts, making sure employees use up vacation days and remaining funds, and tying up all the other loose ends to set things up right for the new year.

And then there's end-of-year retirement plan compliance to deal with, which is no small task, regardless of your plan size.

We know how tough balancing all of that can be, so in this checklist, we've laid out three steps to help you maintain full compliance and keep your year-end stress free.

Step #1: Get Your Plan Documents Audit-Ready

Take Inventory of documents and begin gathering data needed for your year-end audit.

There's a lot of documentation and data that you'll have to have on hand during year-end audits. Taking inventory of and collecting these should be your first step.

Get a copy of all notices that were delivered during the year - your Summary Plan Description, Summary of Material Modifications (amendments adopted after the SPD was drafted), Automatic Enrollment notice, Blackout Notice (if your plan made changes that required such notice), Qualified Default Investment Alternative (QDIA) notice or Safe Harbor notice (for 401(k) and 403(b) plans with Safe Harbor provisions).

In addition to this, you’ll need to furnish TPAs with documentation of what happened during your plan year. This means collecting your hiring, termination, and compensation records.

Once you have this information gathered, you’ll want to do some “checking-up,” to make sure your plan isn’t accidentally out-of-compliance.

Review your plan documents to ensure they have been updated to reflect recent changes in the law. Check on your hardship distributions to be certain that the plan’s terms for these special distributions were followed. Lastly, make sure that participant loan balances didn’t exceed regulatory maximums or those imposed by the plan, as errors can result in fees and penalties.

Don’t forget to check on every part of your plan, particularly if there are special circumstances in your plan. If you automatically enroll employees, check to see that newly eligible employees received their required notices within the required window. Remember that participant-directed accounts may also have Fee Disclosure notices, and Qualified Default Investment Alternative updates to collect as well.

All this document gathering may seem tedious, but even small mistakes can lead to fees and penalties. A thorough end-of-year check can prevent costly compliance corrections when it’s time for the audit.

Here are the main items in step #1 you should include on your checklist:

  • Gather all plan documents and communication copies
  • Review plan documents for errors or inconsistencies
  • Check all automation and special circumstances

Step #2: Find Missing Participants

Track down ex-employees and sort out any outstanding management or distribution details. A missing participant is a former employee with funds still in the company 401(k) plan, and who hasn’t been actively managing the account or updating their contact information.

As you can imagine, this is a serious problem - particularly when it’s time for distributions to begin, and the Internal Revenue Service comes a-calling, looking for those deferred taxes they can now collect.

If you find yourself needing to search for those missing participants, best practices include:

  • Checking the records of related plans and employers for additional contact information.
  • Sending notices by certified mail to participants’ last known mailing addresses.
  • Sending notices to e-mail addresses, as well as texting or calling telephone numbers.
  • Contacting participants’ designated plan beneficiaries for updated information.
  • Using free electronic search tools, including Internet searches and public record data sites.
  • Using a third party or a proprietary Internet search tool to locate missing participants.

Missing participants put sponsors at unnecessary fiduciary risk and are a red flag for a DOL audit. The end of the year is the perfect opportunity to track down missing participants, establish a strategy for their funds, and clear your plan of risk.

Step #3: Boost Last-Minute Contributions

Encourage employees to make full use of the benefits available.

Employees have a lot going on at the end of the year, and in all the hustle and bustle, saving for retirement can be forgotten or put on a back burner. That means it often comes down to you to remind employees to contribute as much as possible to their 401k before year-end. Emails can serve as a helpful reminder that maxing out contributions by the end of the year may mean lower taxes for employees.

A healthier plan also makes it easier for your plan to pass nondiscrimination testing (and avoid having to make corrective distributions to your Highly Compensated Employees). Lower taxes, more savings, and less disruption to everyone’s year? Truly a win-win.

Now is also the time to get employees not actively participating ready to save with your company plan - give them some good reasons why to use it and emphasize how easy it is. Remind non-participating employees that starting your savings at the beginning of January helps maximize your annual retirement contributions and returns.

Conclusion

Documentation gathering, detail reviewing, participant tracking, and encouraging contributions - all told, that’s quite a lot of 401(k) pruning and managing to do by the end of the year.

But now you’ve got the tools and strategy to get the job done. Tackle these tasks one step at a time, and you’ll have your plan in tip-top, audit-ready shape before the new year.