PLANSPONSOR - December 2022-February 2023 - 16

COVER STORY
Ultimately, the key to doing a review is to
ensure that a retirement plan is operating in ways
consistent with what the plan document says.
operational self-audits,
because of the time it takes, "
Buckmann says. " But this pilot program, which may or may not
become permanent, is a big incentive to do that. You have the
opportunity to get lower penalties if you can show you're on the
ball and have fixed a problem. "
Starting the Review
When starting the process, Buckmann says, it is a good idea for
plan sponsors to get familiar with the IRS' " 401(k) Plan Fix-It
Guide, " which lists 12 of the most common operational errors
for plans, as well as how to find the mistake, correct it and avoid
making it again in the future. " The typical way a review starts is
to make a list of things to check, " she says.
Plan compliance reviews can vary widely in their depth
and scope, says Kelly Geloneck, an attorney who is a counsel
at Groom Law Group, Chartered in Washington, D.C. " Before
beginning a compliance review, we talk to the client about its
preferred scope for the review: Is this just a review of the plan
documents, to make sure they are up to date and compliant with
IRS and Department of Labor guidance? Or does the client also
want a plan operational review to confirm the plan is being operated
in accordance with the plan documents? " she says.
If the sponsor prefers a full operational review, Groom
typically will begin that by requesting a broad range of plan
documentation. The law firm then reviews the documents, to
confirm whether they have been updated for required amendments
since the plan's last IRS determination letter and to see
whether plan communications to participants are aligned with
plan provisions, Geloneck says.
Groom will then meet with the sponsor to talk in more
depth about the plan's current governance structure and operations.
Geloneck often will ask questions that mirror those the
DOL asks plan sponsors when it performs a plan audit. For
example: Who are the fiduciaries serving as plan administrators?
How were they appointed? And is there documentation
to reflect the appointments? Other questions may focus on the
frequency of fiduciary meetings and whether records of meeting
minutes have been retained.
Ultimately, the key to doing a review is to ensure that a
retirement plan is operating in ways consistent with what the
plan document says. Often, inadvertently, it is not in some ways.
Brakefield says staff members of the employer who are working
on the plan may read the plan document but not fully understand
it, or take action without reviewing it, assuming they know
what it says. Common ways this disconnect surfaces include
not knowing what documentation is required for a participant
to get a plan loan and misunderstanding rules for employee
16 PLANSPONSOR.COM December 2022 - February 2023
participation eligibility, she adds.
Another key during a review is to look closely at how
the plan sponsor's staff works with the plan's recordkeeper,
Brakefield says. Inadequate communications can result, for
instance, in problems related to: employees' deferral-election
changes; employees opting out of automatic enrollment; and
failure to stop a participant's deferrals for the year once the individual
reaches the annual contribution limit.
What are the key processes to focus on with a plan's operations?
" I suggest focusing on money going in and money
coming out, " says Eric Droblyen, president and CEO of Employee
Fiduciary, a TPA headquartered in Mobile, Alabama. " That's
where the employer is kind of on its own to make sure things get
done. " So, for money coming in, that means zeroing in on things
such as ensuring timely enrollment of newly eligible employees,
confirming timely remittance of participants' elective deferrals
and verifying that there are no issues with keeping track of loan
repayments.
For money going out, it mostly means the sponsor ensuring
that it follows the correct processes for participant distributions.
" Where people tend to screw up is in approving distributions, "
Droblyen says. For example, someone working on the plan at
the employer may be unfamiliar with what the plan document
says about the rules for hardship withdrawal qualification. Most
plans-but not all, he says-use the IRS safe harbor plan definition,
which limits qualification to a few situations such as
payment of medical expenses.
Common Operational Issues
Operational issues appear more often with smaller plans,
Buckmann says. " If a company is really small, it doesn't always
have an HR director, " she notes. " Many of the issues on the
smaller-plan side relate to not having much expertise on plan
administration. The sponsor is just trying to fill out forms
when it's told by a provider to do that: It's being more reactive
than proactive. "
Smaller plans are much more sensitive to testing issues, as
well, Droblyen says. Compared with larger employers, smaller
employers tend to have a greater percentage of highly compensated
employees who may contribute up to the annual limit and
fewer employees in the non-highly compensated group contributing
to balance out the plan's testing results.
Kerrie Casey, a Boston-based retirement plan consultant
at SageView Advisory Group, points to three potential areas of
trouble that sponsors should keep in mind.
1) A 401(k) not fully operating according to the plan document's
definition of compensation. SageView often sees issues
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