Your 401(k) plan document might say one thing while your payroll system does something completely different.<\/p>\n
That\u2019s a problem.<\/p>\n
One of the most overlooked areas of 401(k) plan administration is the definition of compensation. Your plan document specifies what compensation is used for salary deferrals, matching contributions, profit-sharing contributions, and other plan purposes.<\/p>\n
Payroll has to follow those definitions.<\/p>\n
Maybe bonuses are included. Maybe certain fringe benefits are excluded. Maybe commissions count. Maybe they don\u2019t. The answer isn\u2019t what somebody in payroll thinks is reasonable. The answer starts with what the plan document says.<\/p>\n
I\u2019ve seen compensation mistakes that lasted for years because nobody compared the payroll setup with the actual terms of the plan.<\/p>\n
That\u2019s how operational failures happen.<\/p>\n
The plan sponsor assumes payroll knows what the document says. Payroll assumes the TPA configured everything correctly. The TPA assumes the sponsor is administering payroll according to the document.<\/p>\n
Everyone assumes, and nobody checks.<\/p>\n
Then somebody eventually discovers that deferrals or matching contributions were calculated using the wrong compensation.<\/p>\n
Now you may have corrections, additional employer contributions, earnings calculations, participant communications, and legal expenses over something that could have been prevented with a simple review.<\/p>\n
Plan sponsors should periodically compare their payroll configuration against the plan document, especially after adopting a new plan, changing payroll providers, amending the plan, or changing compensation practices.<\/p>\n
Your plan document isn\u2019t something you sign and throw into a drawer.<\/p>\n
It\u2019s the instruction manual for operating your plan.<\/p>\n
If the plan document and payroll aren\u2019t speaking the same language, eventually you\u2019re going to have a communication problem.<\/p>\n
And with a 401(k) plan, communication problems usually cost money.<\/p>\n
<\/span><\/p>","protected":false},"excerpt":{"rendered":" Your 401(k) plan document might say one thing while your payroll system does something completely different. That\u2019s a problem. One of the most overlooked areas of 401(k) plan administration is the definition of compensation. Your plan document specifies what compensation … Continue reading