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Plan sponsors can avoid costly ERISA compliance errors by helping their employees navigate the retirement plan enrollment process.

Employer strategies

ERISA Compliance Begins With Helping Employees Understand Retirement

  • Joey Kennedy
  • Jennifer Jackson
  • 3/19/2019

Plan sponsors and governance committees have a lot to keep track of in order to remain compliant with the fiduciary responsibilities of the Employee Retirement Income Security Act of 1974 (ERISA). But employee education should be at the top of any employer’s priority list.

The Internal Revenue Service (IRS) and the Department of Labor (DOL) are cracking down on plan sponsors who aren’t following their established retirement plan processes. There are a few common findings from DOL, IRS, and external audits, including failure to properly notify and enroll employees in accordance with the plan document, and inadequate documentation supporting participant enrollment and elections. These mistakes can be expensive for the plan sponsor, who is responsible for the cost to make corrections. Here are some steps plan sponsors can take to keep their employees educated and their plans compliant.

Notify employees

Employers have a responsibility to notify their employees of retirement plan options and facilitate the enrollment process. Some companies choose to have a dedicated individual sit down with new hires and discuss the impact contributions will have on their retirement. Companies that don’t have the capacity to provide this level of education should consider engaging a registered investment advisor (RIA) to host periodic employee education meetings. Additionally, an RIA could help fulfill other plan sponsor fiduciary responsibilities.

Facilitate the enrollment process

Once an employee becomes eligible to participate in a retirement plan, the plan sponsor has a fiduciary responsibility to ensure the employee is enrolled in accordance with the participant’s desires. There are three primary ways to get employees enrolled in a retirement plan.

1. Have employees fill out paper forms. Once received, the plan sponsor then reviews the paperwork for accuracy. The plan sponsor should maintain these forms in the event that the employee has questions or are needed later during an audit.

2. Employ a service provider. This method allows employees to enroll and choose their deferral amounts and investment elections online. With this option, the plan sponsor doesn’t need to maintain any paperwork or enrollment forms.

3. Adopt automatic enrollment. All employees will be enrolled unless they make an affirmative election to opt-out of the plan. While this helps increase enrollment, it doesn’t take the plan sponsor off the hook. Many plan sponsors misunderstand auto-enrollment and believe that since enrollment happens automatically, they don’t have to monitor the process. The plan sponsor still needs to manage the enrollment process to ensure employees are enrolled in accordance with the plan document.

Avoid future errors

If a plan sponsor doesn’t have the appropriate processes and internal controls in place, they could miss data entry and typographical errors. Typically, these errors are symptoms of an underlying lack of personnel or resources. With the right processes in place, those in charge of benefit administration could mitigate common errors, thereby reducing risk for the company.

Plan sponsors ought to consider implementing checklists and scheduling reminders to ensure all newly hired personnel are reviewed for eligibility and enrollment. A periodic review of paperwork for current employees who have elected not to participate will help catch mistakes that might have been made previously. Here are some questions for plan sponsors to consider when establishing an enrollment process:

1. How will employees be notified of their eligibility? How will employees receive information about the plan? What steps will be taken to ensure all employees are notified of their eligibility in a timely manner?

2. Who will be responsible for monitoring participation and eligibility? If paper forms will be used, where will the forms be stored? If the plan has auto-enrollment, what is the process for obtaining an opt-out form?

3. How will the employer keep track of plan changes? Will participant deferral elections and changes be reflected in both the payroll and recordkeeping systems in a timely manner? If using paper forms, what measures will be taken to ensure changes to participant investments will be completed?

How we can help

These are just a few suggestions to improve your initial employee education and enrollment process. CLA’s employee benefit professionals can review your plan, identify areas where you may be at risk, and provide recommendations for improvement along with suggestions to help your employees reach their goals. We also urge you to consider bringing on a registered investment advisor (RIA) to assist with employee education and other plan sponsor fiduciary responsibilities.