Some of the biggest 401(k) problems start with something that seemed completely insignificant.
A new payroll code.
A change in an employee’s classification.
A new bonus program.
A new company.
A change in ownership.
A new payroll provider.
None of these changes may seem like a retirement plan issue when they happen.
Then a year later, someone discovers that employees were incorrectly excluded from the plan, compensation was calculated incorrectly, deferrals were missed, or contributions were allocated using the wrong numbers.
Small changes can create large problems because retirement plans touch so many parts of a business.
Payroll, HR, ownership, compensation, acquisitions, and employment classifications all affect how a plan operates.
The biggest mistake a plan sponsor can make is assuming that a change is too small to mention.
A new payroll code might exclude compensation that should have been included. A change from employee to independent contractor status might create an eligibility issue. A new related company might create controlled group or affiliated service group concerns.
The problem usually is not the change itself.
The problem is that nobody asked what the change meant for the retirement plan.
Plan sponsors do not need to become ERISA experts. They just need to develop the habit of asking questions before changes are implemented.
Call your TPA. Call your adviser. Call your ERISA attorney if necessary.
Five minutes spent asking whether something affects the plan can save months of correction work later.
Retirement plan failures are not always caused by dramatic decisions.
Sometimes they start with a tiny administrative change that nobody thought mattered.