Operational Compliance: Who’s in Control of the Controls?

In recent years, regulators have intensified their focus on and scrutiny over retirement plan controls. Given this, it’s critical to ensure that the proper procedures and controls are in place for your qualified plan.

Operational compliance controls are a particular area of focus for the regulators. Specifically, you should make sure that your plan operations are consistent not only with your plan document, but also that they meet the terms and conditions of all applicable laws.

Failure to do so could expose your plan to penalties and high costs to correct errors exposed during a plan audit. In a worst-case scenario, it could even lead to the loss of qualified plan status.

Evaluating Your Controls

One way to ensure that your plan’s operational compliance controls are adequate is to evaluate them at each stage of a worker’s employment lifecycle. These stages typically include the following:

  1. Plan entry — Controls should be in place to verify the accuracy of such information as employees’ dates of birth and hire, number of hours worked and participation eligibility. Controls also should ensure timely enrollment for eligible employees and on-time delivery of required notices, such as those regarding automatic enrollment and safe harbor contributions.
  2. Accumulation of benefits — There should be controls that make sure employee salary deferrals are properly calculated, including accurate determination of covered compensation and prompt execution of changes in deferral elections.
  3. Vesting schedules — Controls should ensure that all applicable service hours are counted toward vesting and that vesting is properly determined before benefit distributions begin.
  4. Distribution of benefits — There should be adequate controls in place to make sure that all participants have received a summary of and clearly understand the plan’s distribution provisions, and that distributions are only made to the participant.

The summary should include triggering events applicable under the plan’s terms, commencement dates for distributions, different distribution options (e.g., installments, lump sums, annuities) and any required income tax withholding, among other events.

Organizing Plan Information

Your plan’s operational compliance controls should also ensure that procedures are in place for the organization and retention of a wide range of plan information. This typically includes participant demographics and benefit determinations, testing results, consent forms, distributions, and applicable government filings, among other documents.

Our team at Holtzman Partners can help answer your questions about your employee benefit plans. To learn more, please give us a call at 512.610.7200 or send us a message via our Contact page.

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