Every year, your TPA probably asks you for census information, and every year, someone at your company probably treats it like another annoying administrative task.
It isn’t.
The census is more important than you think because so much of your 401(k) plan’s annual compliance work depends on the information you provide.
Dates of birth. Dates of hire. Termination dates. Hours. Compensation. Ownership. Employee classifications. Deferrals. Employer contributions. All of that information can affect testing and plan administration.
Garbage in, garbage out.
Your TPA can be the greatest TPA in the world, but if you give them incorrect information, they’re going to produce results based on incorrect information. A missing employee could create a coverage issue. Incorrect compensation could affect allocations. Wrong ownership information could affect highly compensated or key employee determinations. A bad hire date could hide an eligibility problem.
The dangerous part is that the results can look perfectly legitimate.
A compliance test doesn’t necessarily flash a giant warning sign saying the census information was wrong. The test simply works with the information provided.
That’s why plan sponsors should have a process for reviewing census data before sending it to their TPA. Don’t simply download something from payroll and assume it’s correct.
Compare the information against HR records. Make sure terminated employees are included when required. Identify owners and family relationships. Explain unusual employment situations. If you acquired a company or added a related business, tell your TPA.
Your annual census isn’t busywork.
It’s the foundation for much of your plan’s compliance work.
If the foundation is wrong, everything built on top of it might be wrong too.