What activities and responsibilities do a 401(k) plan’s third-party administrator (TPA) have as year-end approaches, and how can plan sponsors or administrators better work with them to make sure those responsibilities are maintained? Anders director and 401(k) practice leader Kim Moore is joined by audit manager Karen Hill and audit supervisor Kristin Cortez to discuss proactive strategies both plan sponsors and TPAs can enact to fulfill fiduciary duties and ensure compliance.
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Episode resources:
Narrator
Welcome to. 401K audit CPA success show where we're 100% focused on helping companies across the United States prepare for their 401K audit. If you have 100 eligible participants in your 401K plan. Then this podcast is for you.
Kim Moore
Welcome everyone, to this month's 401 kcpa audit success show. I'm Kim Moore here with Anders and I have Karen Hill, audit manager on the team and Kristen Cortez, our audit supervisor on the team. So welcome. Ladies to our podcast this month we are going to talk about third party administrators and or record keepers. Are slightly the two. Kind of titles are. Different, but we're going to kind of use them a little bit. Today, we're going to talk about the activities, responsibilities that a third party administrator record keeper could perform for a 401K audit plan. And as we approach the end of the year, there are a lot of activities that will be coming. We thought it's a good time to take a look at this topic from both the plan sponsor or plan side as well as if you were a record keeper. Third party administrator, what kinds of things can you do to help make sure that the plan is meaning its compliance and fiduciary responsibilities. You know, kind of a laid back approach or more proactive approach. As auditors. On an audit firm who audit quite a number of 41K plans. Obviously we would prefer the proactive approach, so we're going to kind of approach that today that topic and go through some areas that we thought would be helpful to both the plan sponsor and the record keeper in this area, so. First thing I had on the list is provide instructions on things that are. Sounds pretty basic, but I know we've seen a lot in our experience that a lot of errors happen when. A record keeper or a third party administrator gets abbreviated TPA, so I'm going to use TPA to help kind of move this along. But when the record keeper or TPA ask a client a plan sponsor, IE plan to do something but don't give them very good instruction. And some of this can get kind of complicated and that's where we start seeing errors just because of a lack of understanding. Don't know. We start with. Do you want to start with the census? Some some things that can go wrong.
Karen Hill
Well, for the census preparation, you should make sure that they know who to include on the census. Information to include on the census and especially as the census usually has compensation on. There. What kind of compensation to include on the census? So are you going to put all compensation on this census or if there are highly comp person and goes over the limit, are you going to cap it? Limit, which is usually what we see. So you want to make sure that they know who to put on there and what to put on there, otherwise you're going to be going back and forth trying to to get that corrected. Or if you don't know that there's an error. The testing results are going to be wrong. Not going to be accurate. And you could have potentially a failure when you shouldn't have. Or it's going to look like you passed and you really should have failed and made corrections.
Karen Hill
All right, that's first thing with the.
Kim Moore
I would also agree. Don't. Don't put folks on there that shouldn't be on there. Don't put contractors on.
Karen Hill
Umm.
Kim Moore
Don't put if someone terminated during the year, they should be on the census. They should have a termination date. We quite often see the person is included but they don't have a term date which is not helpful.
Karen Hill
Right that.
Kim Moore
So yeah, so it really should be similar to your payroll. You're in payroll report. Not including everything, obviously a Piro report would include, but not exactly. Not exactly like that so.
Karen Hill
Right, right.
Kim Moore
Umm.
Karen Hill
There's gonna be subtle differences, especially with compensation. If you look at AAW two, it's gonna include group term life. The census may not. It kind of depends on the definition of compensation that your plan. You said, yeah, those kind of things. You just wanna make sure you have the the correct information on there.
Kim Moore
Best thing to do if you're the TPA, provide detailed instructions of what you want on there and what you. And if you're the plan sponsor and you either don't get instructions or you're confused on instruction, ask before you start. Because too often we hear from the, you know, what would be our clients which are the plant sponsors that well, I didn't know. Guess and I just did this well. That's the wrong answer, wrong approach. Do. Don't do that, because more often than not. Will be wrong. So Kristen, I did the census, I submitted it to. T. A TPA then goes and they do their discrimination testing. Now what? What happens next?
Kristin Cortez
Then they have to determine if there's a need for any corrections due to, you know. Excess contribution, sorry. So yeah, so they'll have to go ahead and. And see if there's going to be any corrections that need to be made by the plan.
Kim Moore
And you know in in this situation sometimes it can go a lot of different. So the US plan sponsor may get a report back and it says did the testing everything. All good. In that case. I mean you could dive into it and look at it more closely, but most of the time, OK, it passed. I I did what I'm supposed to do. No corrections needed. You're done. Where can get tricky is when you don't pass a test and so then sometimes there's like. One way to fix it. There's two ways to fix it. It depends on what the report that you get back looks like, so you may. A couple of different options. If that's the case, one may be very obviously more appealing than the other, one may say. You just need to refund a small amount to a few participants or you can add $1,000,000 to plan. You may say about what what. So it. Be real obvious in other cases it's. A more subtle. And those are the cases where I would say again, go back and discuss with your TPA record keeper because. It's not always real clear cut, and it may be a little confusing as to what you should be doing. The report itself may be confusing. I've seen some of them. Look at. You're like, am I supposed to do something? I. I don't even know what this is telling me. Some of them are are really easy to understand. Of them are not so much so. I think this is 1 area. If if I was the plan sponsor and I hadn't dealt with this for a number of years, I would probably always be going back and asking what am I supposed to do here? Because they're not. You know, they're not always as. As clear cut as you might think. Another area that I put down that I would go back to my TPA record keeper is if something. I'm. Maybe I'm not even sure, but I think I messed something up. I made a mistake so that could be all different kinds of things that I should have let somebody into the plan and I didn't catch it for six months. I should have. Done something with their their compensation and their. So maybe I put the wrong deferral rate on, somebody changed a deferral rate and I didn't get it changed. I changed it and I shouldn't have. Could go the opposite direction. It could be that I withheld money and I didn't get it put in the plan right away. Held on to it for a while. I forgot about it. Who knows? Those are all examples of things, and you know there's hundreds of situations where you could make a mistake. In administering the plan, there's all different kinds of correction methods. Depends on the on the situation depends on what kind of error it is. Might depend on how big it is. Depends on what happened to the. Were the participants impacted by it or not? So those are are good situations. I would go back to your third party administrator, TPA record keeper and ask them, OK. The. Here's what I did. I'm owning up to it. What do I? They should be able to help you out. Out. If they can't, I would suggest Googling ADOL or an IRS voluntary correction program because they there are more than one program on both sides, and it depends on what the error was, but they usually will have a correction program that can help you through. It, but they can again be pretty complicated. I would start with. And hopefully they. You know they will be able to help you out with that.
Kristin Cortez
And from an audit standpoint, make sure you keep the. Just keep that document trail because inevitably, at some point it'll be, you know, brought up so.
Kim Moore
Yeah, very good point. And it's. We have kind of the Murphy's law of auditing. It always seems like when we pull our samples, inevitably we're going to pull the one where you made a mistake and you know, we're not necessarily trying to do that on purpose. Just kind of happens. But usually. We'll find something. And you know, there were no. We're not today's topics, not really on the auditor focus so much, but I would bring that up to your auditor to. If something did happen, go ahead and fess up at the in your planning meeting with the auditor, because it's a lot easier for the auditor to kind of have it in the back their mind. That's. They they did whatever it is. And so as they're going through and looking at things will be like, I bet that's that error that they told me about instead of your auditor having to pick around and try to figure it out, you're just gonna waste. Time and. Probably make your auditor mad because they've had to waste time on something that you already knew about. I I would go ahead and. Bring that up right away at the beginning of the audit. Karen, we're. We're kind of past the point of the form 5500, but that will be coming up again here in the first part of our beginning of the of the year for next year. What happens when? Your record keeper, TPA. Hey, you're 5500 ready.
Karen Hill
You need to review the 5500 and along with that determined by reviewing. Make sure that the information on there is correct as far as the the plan name and and the plan sponsor and all that kind of information. That's also on there as far as plan number and all that kind of thing, all that kind of stuff, but you also. Look at. The the second page which will help you determine on whether or not you need an audit and maybe your record keeper could help you with that if you're not sure. And when you look at it, you know they could maybe help you figure out if you actually do. An audit. So you want to just make sure that you look at everything, make sure all the information's correct. Maybe not so much the numbers 'cause we understand that that might not be something that you know in the back on the schedule age. But you know the the the first couple of pages you wanna look at make sure the information's correct.
Kim Moore
Yeah, you know those. 55 Hundreds again can. Some of them are kind of short, don't have. Lot of. They're they're a. Return and we talked about the form 5500 on. It's a tax return, so you know how tax returns. I mean, there's all. There's hundreds of schedules that you could use, but you're only going to use the ones that apply. So. Going to depend on your plan, the activity that you had in the plan, the providers that you use, etcetera as to what schedules need included. As an auditor and Azure record keeping tab, I don't get any of us are expecting US plan sponsor to know all of that. Experts on that, that's kind of outside your area of expertise. Your record keeper should should be well, well aware of what schedules your particular plan needs. So yeah. Wouldn't pay so much attention to that. The numbers I would look at just for reasonableness. If if you know you've been watching your financial stamas for your plan and. It's got around 10 millionish dollars in there and you get your 5500 and it says 2 million or 200 million. Know you probably want to say, wait a minute. What's? On here. But you're. You know, not exactly down to the dollar or even hundreds of dollars or anything like that, but.
Karen Hill
Yeah.
Kim Moore
You know, if you know that you make employee and your company does a match and you only see employee contributions, you know that that would be a red flag. What happened here? Are there? Any employer contributions because we made this? This year, if you know that you approve distributions and you know you're seeing $10 million in distributions and you approve two small ones again, you might be wait a minute. What's what's going on? We do have clients who will take their year end financial statements and they'll check and look for differences and. That's, you know, that's great if if you feel like you have the expertise to do that. That you know, that would be wonderful, but just generally a reasonable. Check, you know is probably good enough. I also, you know, Karen brought up the numbers on the on the page two of the 5500. You know, again, you're not going to probably know exactly those numbers because there's rules around what numbers go on what lines, but those numbers will determine if you need an audit or not and what type of plan you are. And there are different rules that apply. Small plan versus. So if you don't think that's right, you know if your TPA has listed you have 200 active participants as an example in and you're like I, you know we've only got 30 people, how could we have 200 active participants? It may be correct. You know you may have a misunderstanding, but don't be afraid to question those numbers because we've seen situations where TP as. Got their own. Maybe they've got people included on there that actually terminated and pulled their money out or or vice versa so. You know, I think too often the clients take those reports and they're just like, well, the TPA knows what they're doing. Don't look right to me, but they must know and and maybe they don't. Don't. Don't be afraid. You know to question to question those numbers. Um.
Kristin Cortez
Yeah, I. If anything looks out of line or doesn't make sense to you, just ask. You know, ask them to provide. Did you get that number? Whether it's financial or the participant account, how did you get that number?
Kim Moore
Right. And they they should. Be able to tell you if they can't. It's a red flag. It you know, it may be wrong because you know. It should. It should be easily determined by them. So one other thing I had jotted down on my list. If you happen to be at PA or record keeper and you're listening to this, I think it's a good idea to provide written instructions along with any tasks that you're asking. One of your clients to perform. I know it, you know. May you may think, oh wait, I don't need to do that. That's going to be a lot. Work, obviously. You do it once. You can give it to everybody and you can reuse it.
You don’t have to recreate the wheel each time, but I think having written instructions is helpful because the person getting. At your. May see an e-mail come through and they may not look at it for a couple of weeks and and by then now I'm up to the deadline. Don't have time to call and ask the question, so I think having the written instructions is helpful and the more detail you can put in there. I think it's helpful. I think also putting contact. Named numbers with things is. Some of our clients have a dedicated Rep from the TPA record keeper and so in those cases they they're gonna call that person. That person knows their plan. Used. Working with. But a lot of times don't have that. So if there's a specific, you know, 1800 number or whatever that you can give them to contact with questions and and if you put something in there that gives whoever they're going to talk to a little bit of guidance on on what the person is going. Have questions on, I think. You know, to narrow that down is helpful, but you know some some type of call here to get help is is helpful. You know, online help would be great. We've seen video recordings of of training of certain things that that would probably be useful as well. Honestly, I think the giving deadlines timelines for tasks is crucial. Most of our clients that we work with, they don't understand the implications. Of not putting a census together, you know I can do that in three months. Well, in three months now, you've missed the deadline for doing those corrective distributions. We talked about a corrective actions that you need may need to take. They don't understand if you delay getting them the information you can't put together the form 55155 hundred has deadline so. You don't. I need these specific things and I need them on this time. More than likely they're going to miss the timelines and you also need to explain what happens if you're not going to abide by those timelines, because again, most folks, that's all above and beyond, you know what? Understanding is. So those are my kind of general ideas for TP as record keepers. One year we. About at the beginning of this podcast. Being proactive. So we're going to talk next about some things we think Atpa can do to be proactive to help out the client and also help them. So, Karen, you want to start off with kind of our first suggestion?
Karen Hill
If they do miss the client, does miss one of those key deadlines follow up with them? Don't just let it go by and see if they happen to remember that they missed the deadline. You know, call them. Them an e-mail. Say hey, there's this. You know, might be good to send actually send reminders before. The deadline hits too as well, so that they aren't late for the deadline. But you know, just follow up with them and make sure that they understand that they missed the deadline.
Kim Moore
Yeah, and. The next point I had on the list which kind of flows out of what you just said, Karen, I've seen a lot of situations where TP as have an e-mail you have, they have a client contact name, their main person, they're gonna contact and they. An e-mail. And most of the communication goes via e-mail. They're going to send emails to this person saying, hey, this is due, I need you to do this. This showed up. I need you to review this, whatever it might be. And if that person leaves their position and doesn't tell the TPA, which happens a lot, they don't remember. They they. Probably remember to update their payroll provider, but they're not going to remember necessarily all the different vendors that they use for the different benefits. And so they may forget to tell you. Now this e-mail is going. To not use not monitored e-mail, nobody knows. They're supposed to do all this. We've had. Lot of clients who will contact us and they'll say, you know for three years, no we didn't. We didn't do our discrimination testing. Didn't prepare a. We didn't file a 5500. Oh my God, we needed an audit. Didn't know any of this. I just came into the company last month and I just found this out and so now I've got this big mess. Deal with and we go to the TPA and the TPA is like. I. Whatever happened to them? 'cause I. You know, I used to talk to Susie and I haven't heard from. And well, Susie, I don't live there anymore. So I would suggest number one you have more than one contact. Always have at least 2, so you can, you know, have a backup that you can contact. Get more than just an e-mail, get a phone number. You know, surely you've got their. Send send them something. But I I would do some some pretty extensive follow up because I think the TP as then can be on the hook if you know they're just letting this plan be out of compliance for years. And you know, I was sending. No one ever responded, and I never heard anything from them. So you know. I would be a little bit. I would be a little careful with that and make sure that that you are following up, as Karen said. You know, give the person a call, and if if nobody answers and you've called a couple of times, it's probably time to move to your second contact. Any anybody have any other thoughts on that?
Karen Hill
Well, I mentioned sending reminders. You also, if the information that they submitted is incomplete or looks like it's incorrect, follow up with them about that as well.
Kim Moore
Yeah, which we see a lot as well. We see a lot of, you know, your payroll has 300 employees. Your census has 100. You know, or you've got five different payrolls and we only see 2 on your census, so. Which sometimes the TPA record keeper could could detect, sometimes not. So we're going to. A little bit more about that.
Kristin Cortez
It's just. Yeah, it's just easy. You know at year end to just take that census and compare to your year, year to date? Sure, you know, you understand what the differences are and make sure your contributions agree to it. Know before you even send it to your TPA.
Kim Moore
Yeah. Yeah, I totally. Quick stab that'll save you a lot of headaches going forward.
Kim Moore
Kristen one. Thing I had on the list here was training. Any thoughts on training TPA can provide?
Kristin Cortez
Yeah, I think they can provide online training for the key areas where they see you know, a lot of mistakes being made. You know, especially probably in the area of contribution remittances and just missing documentation and things like that, they can provide in person training if they deem that important, they can check in with their clients and make sure that they're providing. You know the information that they need to perform the year end. And just also provide what are the best practices for training and give the client documents that will assist them with their best practices? Teach them how to use the website, where to find. That's gonna be very important, especially if they have to have an audit a lot of times. You know it's you and your auditor trying to figure out where is that report that I'm looking for. So maybe just give them a little tour of the website and what's kind of in that back office.
Karen Hill
Yeah, because there's.
Kim Moore
Absolutely.
Karen Hill
Been plenty. And I've been in one that a website that I'm not that familiar with and I keep poking around and poking and eventually I'll find it, but I wasted a lot of time poking around trying to find the information that I want.
Kristin Cortez
And also find out how far back is your historical data, because a lot of times clients think they can go and get this information and it's it's gone.
Kristin Cortez
Know they've purged it after a certain time frame, so it's good to know what what not only your deadlines, but like how far back can you go. To get information so.
Kim Moore
Yeah, absolutely. I also think one thing, and I think I had this listed later on in our in our kind of notes. When we're talking about training, you also might be able to provide training to the participants. Sometimes we see that coming from the investment advisor more. On the investment options and how to choose between these lists of 20 different. But sometimes the record keeper has some good depending on the sophistication of the record keeper, they may have some good tools on their website that help participants to plan for retirement. You know that's a good opportunity to kind of push to the participant. Hey, you should. Consider joining this 401K plan because it's a good opportunity to save, you know, and you can do a little spiel about that and help your plan sponsor out to get good participation. But it. You could kind of help explain about. Plan and how it works. I know you don't want to get into investment advice that that gets into legal issues, but but I think there are areas that you could talk about with regard to the plan that could help out participants and make them feel a little bit more comfortable. Usually those websites that participants can get on as well. A. Part of the website that the partic. Seeing but again same thing applies. You know where am I going to as a participant? Where can I see my transaction? Where can I see how my investments are doing? Where can I see if I want to take a distribution and I have to do it online? Where do I find that? Know if I want to see the planned document, where do I? So those are all things that I think you could very easily put together, even a a webinar type thing and put it out there and say hey. You're new. To our website, you know, do this quick 15 minute webinar and it'll show you in all the. Pieces and parts of the website, and I think participants would be appreciative of that. That's another thing that I think you can, you know you can offer.
Kristin Cortez
Sorry, Kim.
Kim Moore
No, no go.
Kristin Cortez
Ahead. I saw recently on one of the TPA websites when I was doing participant data testing was that they. Gave their. Participants like a retirement readiness. So they could actually like based on what their investments and what what they were investing in, they could project for them like. You're 50% ready to retire or you're 70% ready to retire. You know, just making sure that they can be within whatever range they want to be for retirement. I thought that was really helpful. You know that.
Kim Moore
I think that's great.
Kristin Cortez
You a piece of. You know, knowing, hey, I'm. I'm investing in the right thing so that I can retire when I have, you know when. Set my goal.
Kim Moore
Right. And helps you to plan? So if you're you're not where you need to be, it'll help you to know. OK, so you know. I'm. I'm not where I want to be, but what do I need to do to get where I want to be? Usually those sites will help. You know if if you bump it up, you can do. Some kind of scenario planning on there? If instead of doing. 2% contribution if I did it at 5. Is that going to get me there or I you know I need, I need to do more or I need. Do it quicker. You know, whatever might be the. So yeah, I think those are those are great tools. I next listed something some day-to-day things I'm going to run through these just kind of quick. Because I it depends on the TPA and you know what kind of services they provide, how much they're charging, whether they'd want to get into these kinds of things. But there. Areas where I think the TPA could be watching on a regular day-to-day basis. Going on with the plan and. Kind of have a little red flag kind of come up that hey, wait a minute. Something might be wrong. A couple areas are listed contributions, so if they know that this I I see a contribution every two weeks. Or at the beginning the end of the month or the middle of the month, end of month, whatever the regular sched. As most firms run a regular payroll schedule, so if I know I'm supposed to see them on regular intervals, then all of a sudden I don't see. That. Be a red flag to go back to your client and say what what happened. Noticed there aren't contributions during this time period. Also, if the contribution you know that they generally make a payroll contribution of around $5000, obviously is going to change payday to payday, but it's around $5000 all of a sudden it drops down to $500. You know, did you make a mistake? Did. Did you not run the deferrals right this pay period? Same thing if you notice that you know they have a safe hover match and so every payday I'm seeing employee employer Safe Harbor and then all of a sudden. Wait a? There's no safe Harbor match. What? Not that I think it's. It's probably beyond the expectation of anybody. That's TPA is going to like audit every payroll unless that's part of your contract. But I think just some. Similar spot checking could point out potential problems that they just may have been an error and. You know, they just got missed. Same thing with distributions. I think we see a lot of places where there aren't any kind of review and approval over distributions and maybe that's what your your client wants, but it's probably not a great idea, especially with all the cyber security issues going on. It it's a better practice, if not a best practice to have those distributions reviewed so that maybe something that you can suggest and say hey, you know it's something we offer. Talk that through with the plan. See if they want to, you know, try to think about that going forward. An area we see a lot of errors in our participant loans. They're kind of a landmine for a lot of reasons and so. Quite often we'll see a plan has a lot of participant loans. They're behind. They didn't get the payments, didn't get started, timely payments, all of. Sudden stop. They keep going after the end of the. Loan. And so now you've got to refund a. Bunch of money back. They can kind of be a mess and the the clients, the client sponsors quite often don't. They don't watch that at. They just they're lucky if they get it set up and then they're just going to let it go until somebody tells them to stop it. So that would be an area. You know, you could help your your client out by by taking a look at the the loan portfolio every once in a while and just look does it make sense? It look reasonable. Has there been recent activity? If there hasn't? Just say, hey, you might want to take a look at this one. Why? Why is this one just sitting here? And I think also a lot of folks are not aware in most plans. If I as a participant take a loan out and then I terminate employment for whatever reason. My own choice or not? That loan becomes either payable pretty quickly or it becomes a distribution and all of a sudden I'm going. Owe. When I probably took the loan because I didn't have the money to begin. So I probably don't have the money to pay the taxes on the money that I've already spent. So I think a little bit, you know anything you can do to to give your client information about that so they can make sure that the participants know before they take those loans out. I think your clients would would really appreciate that. So anything you could, you know do in that space?
Kristin Cortez
Think the same thing is true for distributions. I know as an auditor, sometimes we see that they're not withholding. The right amount, and I think participants just need more education on the tax ramifications of taking a distribution and having that withholding held so.
Kim Moore
Yeah, yeah, 'cause if it if it doesn't come out of the distribution, you're. Have to pay it with your tax return. A lot of people don't realize that. Then they're, you know. They're they're in rush. Get the tax return filed and it's like, oh crap, now I owe a bunch of money. Yeah, but I wasn't expecting so. OK. The last area that I had on the list kind of some key control areas that that we see that. Plan sponsors. Oftentimes kind of get hung up on and and maybe a record keeper could help. 1st. I'm going to talk about is missing. It's been Adol issue for quite a while now and I'm kind of seeing that bubbling back up again. As as something that the DOL is is talking a lot about Kieran, do you want to what is a missing participant?
Karen Hill
Well, a missing. Usually you find out if you have a distribution for participant off. Then it's a force out because they don't have enough money in the plan and the check goes. Never. Maybe it's returned or and you you just you don't know where to. Don't know where the participant is. This happens a lot with. Plans where maybe the. There's a lot of high turnover. I mean, it might not be very common. Might just have one or two, but. That usually what? It's usually a shorter term employee. Because obviously if they're requesting the distribution, they're going to tell you where to send the money.
Kim Moore
And.
Karen Hill
So that's.
Kim Moore
Or.
Karen Hill
I usually see it with the force outs.
Kim Moore
Yeah, I just say with the force out, you know, you're trying to get the money. Of the plan. Because in these cases the the participant has left the company, they don't work with you anymore. You're not paying them. You don't have. Bank account. The person isn't, you know, in your location or you know, you're not communicating with them. They've left. Maybe they're.
Karen Hill
And it's probably, yeah, it's probably been a year or.
Kim Moore
Couple years ago.
Karen Hill
Since they. So you don't have information.
Kim Moore
And so. Right. You've got their last known address, or maybe e-mail or whatever. You know, we all know those things. So so now you're trying to get the money to the participant and you can't find them, so. There are tools out there. The DOL is working on a database to to assist with this and the pension benefit Guarantee Corporation is gonna help. I think with with administering that that day. Database, so I don't that it's up and running yet, but it's something I would definitely go check out if this you know this is an area that you think applies to you, but definitely talk to your TBA because they have a lot of access to resources that you. Not have and it is your responsibility as the plan sponsored to make sure that that participant ultimately gets their money so. Again area you know and the sooner you you try to find the person the better. If you wait 20 years and try. Find them. Good luck.
Kristin Cortez
Yeah.
Kim Moore
Who? They might have left the country by now. You know, I I would. I would try sooner as soon you know as soon and again one of the things we talk about with plan sponsors is make it a part of your exit checklist. If you know that you have a lot of people with small balances, try to get them out as. Part of their exiting the company. That way, once they're gone, you don't have. Worry about? But that's kind of a best practice on the on the client side, the client sponsor side. What? What are? And how does how do they come into play?
Kristin Cortez
So forfeitures are the monies that participants are not entitled to based on whatever vesting schedule that your plan is using. Obviously, participants are 100% vested and get 100% of their. Participant 41 Ki mean pre tax deferrals that rough. Ly may not be entitled to all the money that was given to them by the employer based on. Schedule and so it's up to the plan sponsor to really understand. How to use those forfeitures according to their plan document? Are they using it to reduce their future employer contributions? They using it to pay expenses. Are they using it for both and then what order do they use it in?
Kim Moore
The DOL really wants you to use those forfeitures each pioneer, so don't. You. Is this not a slush fund or a checking account or? It's not meant to just sit there and oh, on a rainy day, I'm going to go use the my forfeiture account. Supposed to use them up because. Because the the plan is for the benefit of the participants, these forfeitures are not allocated to any participants. Sitting in kind of a general fund for the plan but not allocate any one person. They also probably aren't in an investment that's going to earn a lot of. They're usually in some type of like money market or some general kind of investment that's getting interest. So they're not going to, they're not going to make a lot of money and they really should belong to a participant. They, the DOL wants you to use them as Kristen mentioned. In whatever way you can, but during the year or as soon as. After the year that that their first moved into the forfeiture account, as you can, it's not unusual for us to come in and see a forfeiture account sitting there forty, $50,000 and it's it's accumulated over 15 years and nobody's ever touched it and. That's that's a problem. I mean, you could get in trouble for. So definitely an area that we encourage people to take a look at. I'm. I'm gonna kind of lump some of these. Ones together. Monitoring the plan is part of your responsibility, and so some of the areas that you as a plan sponsor should be looking at are your investment selections. You should be benchmarking those investments against similar investments or not an equity investment against. An interest based investment but but equity against equity and an international investment against an international investment. And again. Participants are choosing the investments, but the plant sponsor is choosing the line up of. So they are required really to do a review of those on a periodic basis and the same thing with fees. These were going to be in a few surprises. We're going to be talking a little bit more about fees and fee benchmarking. Another big hot button issue of the Department of Labor and also an area where we've seen a lot of class action lawsuits recent. And you know, plan sponsors are losing all of those lawsuits because they're doing nothing in this area. So. We're going to talk a little bit more, so kind of watch this space. We're going to talk a little bit more about that, but those are areas that you could reach out to your TPA and see if they have tools to help you do those. Reviews. They may or may not not not saying that they have to have those, but that's an area that that they may, you know they may have and you could help them help your clients out with if. Have those. The last thing I had on my list was document. And I think, Kristen, you, you hit that kind of topic already. It's very important that you have documents maintained to help support the plan and everything that's happened or not happened to the plan in the planner. So you know. That becomes important obviously, for an audit. That's kind of what we're all caring about, but it also could be important in the case of the dispute. With an employee or with a vendor. It could be important in the case of something happens with an employ. You know, there's a death of an employee, and now a beneficiary's got to get involved. And of course they're not going to have anything on on the plan. There could be a fire at A at a participant home and they lose all their records, and so they. Back to you to say, hey, can you help back fill some of these records? And of course, it could be very helpful in the case of a. So very important that you maintain those records quite often. We hear from our clients who are the plan sponsors that all the TPA has all that. Maybe they do. Maybe they don't. You know, we usually find out during the audit that that they quite often don't have everything. So I think an area for both sides to kind of meet in the middle and say, hey, these are the kinds of documents that I think we need to maintain as part of the plan. Going to keep them so they're not looking to each other. Well, I thought you had that. We we see that quite often. So those were kind of my thoughts, Karen and Christine, anything you else you guys can think of?
Kristin Cortez
I think late. I know we talked a little bit about contributions here and there throughout, but I think you know a key area that we see a lot of problems with is the late contributions and and the whether or not the plan sponsor understands the DLS definition of a late contrib. You know, so definitely, you know, if like you said earlier, Kim, if you notice. Your client is missing a. Run or something or something. Looks off and really reach out to them and make sure that they understand you know how that can be. You know the consequences of having a late contribution.
Karen Hill
And encourage them to correct it, because often what we find the amounts that are needed to correct the contributions are pretty minimal. But. They'll they won't correct them for years and years and years, and they have the schedule on the reports and they keep asking why is the schedule on the reports? Well, you haven't corrected them yet. Just have and it's just it's earnings, especially cause a lot of times the late contributions are not significantly late.
Kim Moore
Right. And usually they're.
Karen Hill
So. Amounts.
Kim Moore
They're not a lot of money. The original amount that was late, so you take the.
Karen Hill
Right.
Kim Moore
Original line is. The time between when it should have been deposited, when it was, is not that long. Interest rates are fairly low, so by the time you, you know, we've seen late contributions under 10 bucks. The multiple failures, so and again this is a DOL hot button issue since late contributions and you know not that they occur in the first place.
Department either understands that this is kind of a complicated area. Make mistakes. They may not understand. All. We we just make errors so they understand that, but they do expect you to be. The lookout. And once you you see that you made a mistake that you corrected and that you don't leave it out there for years, we have had a lot of clients where the Dol's come back. And they're now finding them because they didn't. They didn't. And So what could have been? Maybe under $100, you know, fix turns into thousands of dollars because you leave it and don't don't take care of it so. An area again, whether you're the plan sponsored, don't ignore. And if you're the TPA, if you can encourage your clients to to get that taken care of, you'll be doing them and yourself a good favour because they're gonna come back to you to get that corrected. Eventually, and so the sooner you get it done, the. It will be. So good point there, Kristen. Anything else anybody's got before? Wrap up here.
Karen Hill
No, I think I think we've covered it.
Kim Moore
Alrighty. Well, I hope. Everyone enjoyed our our podcast this month. We'll be back again next month with some ideas to to help you out as a plan sponsor or TPA with your 401K plan administration. Thanks for listening.
Narrator
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