What common mistakes do employers make when administering employee benefits such as 401(k)s and other profit-sharing vehicles?
One is very simple, and that’s not following the signed plan document, which includes specific rules governing the plan. The plan document outlines when employees can participate in the plan, when they can withdrawal money, etc.
Many times, businesses simply don’t follow the rules. And if they make a mistake administering the plan, they need to fix it. Common errors are easily resolved through various programs available through the DOL that make it easy to report the issue, fix it and move on.
You don’t want to wait until an audit situation to clear up errors.
Why should companies re-evaluate their plan design and set clear objectives for their profit-sharing plans?
We see a lot of employee benefits plans that were set up years ago, and businesses have since changed.
For example, the work force may have shrunk, or the business could have developed into a new niche market, and what made sense a few years ago might not work today.
Be sure to review the plan on a regular basis — at least annually — and make sure the plan design matches your objectives. One company’s goal might be to ensure that the business owner is realizing the full benefits; another company might design a plan that will attract and retain workers.
Talk to a professional in the field about objectives and partner with someone who understands your business and employee benefits needs as they change.
How can employers build flexibility into their employee benefits plans?
Many employers use a prototype plan, which is a document that is approved by the Internal Revenue Service. Employers simply check the boxes on the document without careful review, assuming it’s a package deal.
But actually, this boilerplate legal document does contain quite a few decisions that companies can make that will build flexibility into the plan. This is why it’s a good idea to consult with an expert who can help guide the process so that your company gets exactly what it needs.
How can a company identify a firm to partner with that can provide employee benefits resources?
Find a partner with expertise who has dedicated resources. The 401(k) business has exploded in the last decade — firms see the assets and fee potential and want to jump into the business.
But it’s a complex market, and businesses should be sure that their vendors have the market insight and tools to steer them through the changing landscape.
Jeff West is first vice president of wealth management at Old Second National Bank in Aurora, Ill. Reach him at (630) 906-5500 or [email protected].
