The 401(k) Audit CPA Success Show

Twelve Days of a 401k Plan Christmas

Episode Summary

In this special holiday episode, our host and Summit CPA's Director of Accounting/Virtual CFO, Jamie Nau together with Kim Moore Summit CPA's Director of Auditing and 401(k) Senior Auditor, Karen Hill are coming just in time for the holidays - (whichever one you celebrate) with twelve (12) gifts for you! They give the popular "12 Days of Christmas" a creative spin by giving you twelve (12) things you should think about and prepare for your 401(k) plan going into 2022.

Episode Notes

"Some of this we have talked about before, but what we tried to do is put together twelve (12) that we thought are important to plan sponsors and plan participants." - Kim Moore

The finer details in this episode:

Episode resources

Episode Transcription

Jamie Nau: Hello, welcome to today's show. I'm your host, Jamie Nau and I'm joined once again by Karen Hill and Kim Moore. We are very excited about today's episode. We are in December and we're recording this right before Christmas, and we're going to release this right before Christmas. So we decided to have a festive podcast today, and we were going to do a 12 days of the 401(k) plan. So, we're going to talk through a 12 things that you need to be thinking about for your 401(k) plan going into 2022. So, let’s get into this. I'm excited. 

Kim Moore: Yeah, Merry Christmas, Happy Hanukkah, Kwanzaa, whatever a holiday you celebrate. As we are recording this we're about a week and a half away from Christmas, so I know we are going to publish it pretty quickly. So hopefully this will be good timing for everybody right before Christmas. We thought we'd do a takeoff on the poem, 12 days of Christmas. If you remember that, someone is receiving a gift 12 days before Christmas. If you go through the poem, they keep repeating themselves every time. So I'm not going to do that because that would be really boring. I don't think you'd really want to hear everything about a 401(k) over and over again. So we're going to go through it once. We're not going to sing it either because I don't think anybody would want to listen to that. Some of this we have talked about before. We tried to put together 12 things that we thought are important to plan sponsors and plan participants. In thinking of it as if you are a plan sponsor. If you could get a gift for your 401(k) plan what would be a good thing to have in the upcoming year as a gift to your plan. First thing I came up with and I think this would be first on everybody's mind is a healthy financial marketplace. So the market is going up, continuing on. Interest rates stabilizing. We’re not having as much inflation as we've been having recently. Obviously, higher returns make everybody happy and it would certainly would make your participants happier. So, we're all in this to have money for retirement. So, we want to try to make this festive and useful. So things that you can do to kind of help with that is first off, make sure your investment selection is diversified so that the participants are making the decision. What investments they get into, but if you offer them a different diversified lineup, depending on what the market does they can move their money around so that they can take advantage of whatever's happening. So if bonds are going up, they can move the money into that. If the market is going up, they can move the money into equity. So, consider having a periodic review with an investment manager. Somebody that's a professional that can help you decide if any of your investments are underperforming and you can replace them. It also helps from your fiduciary responsibility standpoint to make sure that you're doing that. So good thing to put in place. If you don't have that, also use that investment professional with your participants. They get nervous having to make decisions about investments. So use that investment professional. And if you don't have one, now's a good time to line one up for next year. They can really help your plan and your participants. And the last thing, we've talked about this before, communication with your participants. Offer them educational resources and material to help them understand the investments, their choices, the diversification, where in their cycle of life they should they be.

Jamie Nau: Market value. That's great. I like what you said there about offering choices and diversity of choices. I think that's key. I do think the more choices you give people, the better off their plan is going to be. 

Kim Moore: So yeah, it is definitely manageable. I mean, regardless of what the market is doing, you can still save money. So number two, this is another one we hear from our clients is they'd like increased plan participation. So I’m a plan sponsor. I spend all this money on this plan. I do a lot of work and then nobody wants to participate in it. They get frustrated and almost mad sometimes that they are spending all this money and nobody's using it. Number two gift would be getting more people participating in the plan, more people taking advantage of it. There are things you can do to help with this communication. Again, we preach a lot about communication, but it is so important to help your employee base understand the value of it, and understand how those assets can really grow over time because you've got all that compounding of the gain. The gains that happen and the dividends and interest. Try to incorporate your 401(k) plan discussions in more formal meetings. You probably have an open enrollment for your insurance plan. So consider adding the 401(k) enrollment discussion into that discussion because most people will go to those open enrollment meetings for insurance. They might not be so likely to do that for a 401(k) plan meeting. So roll it all together that way they're already there and they have to hear it. We talk about auto enrollment sometimes for some plans. That means that employees, once they hit whatever your eligibility requirements, they're going to auto enroll into the plan unless they say they don't want it. And we find plans that do that have much higher participation. Now on the downside, there's an illustration involved with that. You can end up with people with a lot of very small balances if you have high turnover with your employee base. So there's pros and cons with that, but that's something you can consider. Offering an employer contribution. A match as an enticement. I always tell people if there's a match that's free compensation to you. So if you're not putting money into your plan you're not getting that match. You're walking away from additional money you could be making. So definitely consider that there's other things on the horizon. I don't spend a lot of time on this but plans are now doing kind of stranger things than what we would typically see in their 401(k) plan. But having large amounts of student debt is a big issue out there. You know, paying attention to the news, especially for younger folks. Different employers are finding ways to incorporate that into the 401(k) plan to attract and retain younger workers. So there's ways that you can let them pay off their student debt that counts as a contribution. If you can work it through your plan and then you can match that amount, even though the contribution is actually not going in the plan, it's going to pay off the debt, but that way the employee can still accumulate some money into their 401(k) plan. So again, not going to go into that much detail, but if that perks your interest we've talked about it on our blogs. I'd check it out with your service provider. Number three is a real simple one, compliance calendar. We highly recommend everybody, if your provider doesn't give you a compliance calendar at the beginning of the year, you should make one up yourself. Put dates of important tasks on your actual calendar, or use an electronic calendar, or get a paper calendar out if you like the old paper calendars and write down all the different tasks that you have to do for the plan during the year. Who's going to do them? When are they due? When do they need to start? Literally check them off as you get them done. That's the best way to make sure that you don't miss something along the way. Simple things like not filling out a census questionnaire can cause you problems down the road. If you just schedule time to do it, get it in and get it done. Then you can stay on track the rest of the year. So quick tip, but will help you pay huge dividends to you throughout the year. 

Jamie Nau: That's a good start here. We're off and running with the first three.

Karen Hill: The fourth present, if your planning needs an audit, get ahead of it. there's new audit standards for 2021 audits. So the 2021 audits take place during 2022 and these might take some extra time. So getting an early start would be very helpful for that. It also frees up time later in the year for you and eases the frustration about possibly missing deadlines and having fees and penalties associated with missing the deadlines. If you get the audit completed early you pick up a sense of relief that you'll have that task out of the way. And as I said before, your auditor will also thank you for that. They will appreciate the fact that you got an early start and they'll have a lot more flexibility for you as well. And then the fifth present is a completed fee benchmark review for your plan. This can be conducted by your investment professional, or by your service providers. But what this does is it compares fees, charged to other options and evaluates of higher fees are due to additional services that are performed. If you're seeing higher fees, you might want to consider making a change. This is an ongoing issue with the DOL. They really look into the fees and there are more court cases occurring based on high fee charges.

Jamie Nau: So just to draw this back, is this something you should add to your compliance calendar that you should do every year? How often should you be doing this? 

Kim Moore: Yeah, I would recommend annually, or maybe every other year. If you've got a pretty standard, basic plan I would highly recommend once a year, if you can. It's just getting so much attention right now, and there's a case in front of the Supreme Court now around it. Everybody's afraid depending on how that decision goes, what the regulations for everybody would be. It’s a class action type suits. It could be very expensive. You can say who cares about this? It's fees anyway. No big deal, but actually it's a big deal and it's becoming a bigger deal. So definitely something I would highly recommend. And as Karen said do an updated evaluation of your service providers. There's several different service providers. You might have a third party administrator to separate from a record keeper. You should have a record keeper, might be an investment professional. Also your payroll company, you should conduct these evaluations every few years to see if there are better options available to your participants. Be as there might be things that different record keepers or separate providers will offer. With some payroll companies they will actually calculate the deferrals for you and submit them. And other ones, you have to do the calculator or they'll calculate it for you, but you have to do the submissions yourself. Might be different fees associated with that, but I something that you might want to look at and say, oh, well, it'll be worth. It's worth a little bit extra to have that done for me. You might want to look at different record keepers or custodians. They might have different investment options, maybe one has a more diverse portfolio that you could offer to the participants. That might be something that you would want to look into. You want to look at the quality of the service. Were there a lot of mistakes? Did you end up having to make corrections all the time and what information do they provide to the plan participants to help them make these investment decisions and retirement planning? Some of the record keepers have an investment professional or a consultant that participants can use. I know that I've seen that with my own 401(k) clients that I've had in the past. Sometimes they have all the little bells and whistles for the participants. The change of the providers, it's not easy, but it is something that you is part of your fiduciary duty to make sure you're providing the best option for your participants. 

Karen Hill: The only thing I'd say on that one is, we hear people tend not to do this, and now it only comes up when either they're raising the fee and it's like, I don't want to pay that much for this. I'm having trouble with them. Maybe they switched reps and you had a really good rep and now you've got one that's not so good.And they don't know what they're doing and they make a lot of mistakes. I mean, certainly in those situations, you do want to do an evaluation and, you know, make a change if you feel like that's warranted. But what we're really recommending here is that things might be going fine. You know, you're happy with everything. You really like them. They're easy. You know, you don't spend a lot of time with them, but you should still do an evaluation. It doesn't mean you have to make any change at all, but it is your fiduciary duty to make sure you're providing the best plan possible to your participants for what you're offering. I mean, we're not asking a very small company to offer a multi-million dollar plan that they could never afford. But for what you're offering, you need to make the best options available to your people. So, as mentioned, some of these plans might not really change that much, but maybe their website offers a lot more planning tools to your participants. So those are things you want to check out. So maybe it was great, you know, a couple of years ago but when you looked now and there's all these other ones that offer all this stuff that your provider doesn't. Again, not saying you would have to change for that, but I think it just shows you're doing your fiduciary duty. If every so often you go out and do your due diligence and take note. We also recommend everybody on all of these reviews that we're talking about, that you keep documentation, because if you ever do end up in a lawsuit you can say, I looked and I made this decision based on that research. So as long as you make a reasonable. 

Jamie Nau: Makes a lot of sense. Just to let you guys know, this is great and I'm really enjoying the list, but I do miss the singing of five golden rings. I wanted to throw that out. 

Kim Moore: We don't have anything like that. Maybe we could just say something about the market hits the new high. And we can say that every couple of times. Cause I think it was the five golden rings is in the song. It stops right there, right?

All: Laughing [in audible] 

Kim Moore:. Well number seven. There are various disclosures that every plan has to disseminate to participants. It sounds like nothing again. I send them or I don't send them who cares. I will be honest. I don't think most participants read any of that stuff that you send them. So I totally understand that. I sympathize with the plan sponsors. It's a big pain. I'm not sure what value it brings, but it is a requirement. Actually the law provides for, like 10 99s, every 10 99s that you don't issue or you get wrong there's a penalty for each individual one. So if you have let's say a hundred participants and you didn't disseminate the disclosure to the hundred participants there is a theme for each one of those. So the fee times a hundred is what you get fined. So it can add up real quickly. And if somebody wants to get their employer in trouble, they can go to the DOL and say hey. Wasn't I supposed to get a copy of this? I don't remember ever getting it. And there you go. Now you're in trouble. So one of the things we always recommend is obviously disseminate them. Like you're supposed to document that you did it, but there's new rules out now through some congressional acts that have been that allow different ways to do this. Before it was kind of old school. You had to mail it to the person, or you had to print a copy and physically hand it to them. You're not required to do that anymore. You can electronically disseminate. Again, it's kind of complicated. There's rules around it. We don't have time to go into that, but definitely I would check into that If that's of interest. Talk to your service provider. One of the easiest things, most service providers will do that service for you. They're going to charge you of course. But you may find that it's a relatively cheap service. That makes it a lot easier for you. And they've got, you know, they've got all the participants right there. It's easy for them to just email the information or send it to them. So it's a lot easier for them to do it then for the employer. So definitely check that out. I think it could save you a lot of time and a lot of headache. Number eight, is an updated plan document. Why do I care about that? You can have a plan document and that governs how your plan works. And maybe you did it a long time ago and you don't want to make any changes. It's working fine. That's how you want it to work. You don't really want to change anything, but Congress in their wisdom comes in multiple times a year. Actually, they do changes all the time to different things that you wouldn't even think about in regards to the 401(k) plan, but it impacts your plan and the regulators also understand that they don't want to put it on plan sponsors and their providers to have to go in every couple of weeks and be making play in change. It'd be too expensive, too confusing. It'd be a big old mess. So they allow them to wait. And every three, four years then they're required to put all of those changes in to a new plan document. And you have to do it. You don't have a choice and your providers will clue you in when it's time for you to do that. I know here at Summit we just completed ours. We just went through that period. Your provider is going to take care of that for you, but that's a good time when you get that email from them or that call from them that hey. It's time to do your consolidated plan, document change. That's a good time to sit down and say, do I want to really change anything else? I think we've been talking about adding a match or removing a match. Or adding a discretionary profit share, or we want to change the fasting or whatever it might be that you're thinking about. You know, that student loan thing that we just talked about. Let's really explore that and think about putting that in our plan. It's a good time to do it because it will be much cheaper for you to do it as part of this consolidated thing than waiting six months and saying, okay, I'm ready to do it now. They're going to charge $2,000 to $5,000 to make that change where it's going to be only a few hundred dollars if you do it in this consolidated approach.

Jamie Nau: I think the other thing, and we've talked about, the great resignation and the way employees are hands are handling things. And one of the ways that we're talking about keeping really good employees is with benefits. So if there's a way to update it and make it a little bit more, creative, that might be ways to keep employees a little bit longer.

Kim Moore: Yeah, absolutely. And reach out to your service provider and your investment professional. They can also tell you, this is what I'm seeing. These are the trends I see. These are the new things you can consider. So, um, it's worth a little bit of time to update it then. Then number nine is present your plan. If you're avoiding a problem, that's going to happen. We recommend on a more regular basis than annually that you review, who has access to your plan website. That's not necessarily participants, but employees or others who are working on behalf of your plan. So that could be folks inside your company. Could be folks as the investment advisor, you know, could be other folks like me. If you have an attorney or something, we recommend that you go to your service provider ad ask, you know, give me a list of who has access and what do they have access to make sure you have access. Folks change jobs, which we've had a lot of that recently. We've had people leave and their access gets left out there. That's an open door, just waiting for fraud to occur with your plan. So definitely recommend that you look at that on a regular basis. This is a huge protection to your participants. Also the cybersecurity is another huge hot button issue with the DOL. They're really worried. Plans contain millions of dollars. So they're huge targets for fraudsters. It's all kinds of ways that they can take advantage of access that lacks procedures and lacks controls. We did a whole webcast on this topic. So, if this perks your interest, we're not going to run through all that here. I'd recommend going listen to that podcast. It's a very important area. 

Jamie Nau: Great point. And like you said, that definitely has a presence because that's something that you're not going to want to deal with down the road. Okay, Karen, you're going to wrap it up with our last three presents. 

Karen Hill: The 10th one is completed review of the internal controls for your plan. This is very important because the control surrounding your plan can help you avoid making errors and having to make corrections, which often associated with having to make those corrections. You have to add some additional money to it because you have to reimburse the participants for lost earnings and things like that. Payroll is really important. The payroll controls can have a big impact because payroll is where the employee deferrals calculated from there. And they're submitted off of the payroll reports.. So that is really important. You want to review the procedures in that area to make sure that your plan remains compliant. One of the biggest things that we see surrounding the controls is that they're not submitting the deferrals timely to the trust. There's earnings that needs to be deposited to make up for what the participants lost because you delayed in making those submissions. So that's something, you know, looking at your procedures surrounding the whole process of calculating the payroll, and submitting the files. That's really, really important. And we have an internal controls best practice document that we can share to help you in conducting this evaluation and making sure that your controls are strong. Do you have anything to add to that Kim?

Kim Moore: I know Jamie's going to throw out an email address. You can email us and I'd be happy to share that with you. You know, no charge. You don't have to talk to anybody. I'll just send it to you and you can take a look at it. We also have done a couple of separate podcasts around internal controls. So again, if that perks your interest check out those other episodes.

Jamie Nau: Yeah, the email address is As Kim said, you can always reach out to us. 

Karen Hill: Okay, well then I'll go to the 11th present, which probably is the one that most people will like to receive is no visit or correspondence from the 401(k) plan grinches, which is the DOL and the IRS. One of the best ways to avoid that is to make sure you follow your compliance calendar. Often this time of year, we hear from a lot of people who did not have an audit or they didn't file the Form 5500 with the audit report. And so they received a letter from the DOL. Then you have a certain amount of time in order to catch up. If you follow your compliance calendar, if you follow the instructions from your service provider, that will help you avoid those visits or in those letters, don't procrastinate. And probably most importantly, if you do hear from the DOL, IRS respond immediately. Don't just put it aside and say, oh well, nothing will happen. Nothing will come of this. They will follow up and you will hear from them again. And you may have a very, very, very large fine or penalty associated with ignoring that the correspondence. The Grinch is one of my favorite Christmas characters. So I had to throw the Grinch in here. The DOL and the IRS are the Grinch's. I couldn't think of any other way to throw it in there. But seriously the DOL and the IRS, they are looking out for your participants. So I know no one wants a letter, no one wants to talk to them. They don't want to have anything to do with them, but don't ignore them. It could be an error. They could be sending you something in error, but definitely follow up with them. Don't be afraid to call. And if you have a question they really will help you if you are trying to do the right thing. So yes, I say Grinch, but don't be afraid to reach out to them. 

Jamie Nau: I know that we have some DOL and IRS subscribers to this podcast. And now all of our clients are going to be audited extra because you called them grinches so

All: Laughing [in audible] 

Karen Hill: And then on the last day, reduce plan fees that you have to pay for the plan. What are the ways that you can reduce your plan fees other than, you know, shopping around. Try to find another record keeper service provider. Consider an auto withdrawal feature to the plan that will allow you to disperse funds to participants that are no longer employed by the company. That occurs if the distribution would be below a certain dollar threshold and that will help reduce your participant based fees. If you can get some of those old participants out of the plan, that will reduce your fees. They're also assets. Other ones are offset based. So it would have the same effect. If you get your asset down because you've got forgotten rid of some associated with those old participants that are no longer employed by the company that'll reduce some of those fees. We do talk to folks that have, you know, they're needing an audit because they have a lot of employees that have terminated. They're not with them any longer and they've left very small balances in the plan. It just doesn't make sense for that to drive you needing an audit. So we recommend to them a simple plan document change will allow you to move those monies to an IRA or to get in touch with the participants and then make a distribution. I mean, it doesn't make sense. You've got a hundred people with $25 each and that's driving an audit that, that doesn't really make a lot of sense. So, easy thing to spend just a little bit of time on it can save you a lot. 

Jamie Nau: Yes. All right. Well, did it. We, we are showing the world that accountants are a little bit creative and can have fun. So I appreciate you guys coming on. Great job. I know I learned a lot and I'm sure our listeners will learn a lot. Thanks everybody.