For business owners who sponsor retirement or health benefit plans, compliance under the Employee Retirement Income Security Act, or ERISA, is not optional. Even unintentional mistakes can lead to audits, penalties, and potential fiduciary liability. Understanding where employers commonly go wrong is the first step toward protecting your company.
Avoid Late Employee Contribution Deposits
One of the most frequent issues involves late employee contribution deposits in 401(k) plans. Employee deferrals must be deposited as soon as they can reasonably be segregated from company assets. Many employers assume they have until the quarterly filing deadline, but that is not accurate. Late deposits may be considered a prohibited transaction and can trigger excise taxes, corrective contributions, and reporting requirements. Establishing a consistent payroll process and monitoring deposit timelines can help prevent this costly error.
Keep Your Documents Updated
Improper or outdated plan documentation is another common compliance problem. ERISA requires written plan documents and summary plan descriptions that accurately reflect how the plan operates. If an employer makes changes to eligibility, matching formulas, or health coverage but fails to formally amend the plan documents, that mismatch can create serious exposure during an audit. Regular document reviews and timely amendments are essential, especially after legislative updates.
Take Nondiscrimination Policies Seriously
Nondiscrimination failures also create risk in both retirement and health plans. Retirement plans such as 401(k)s must pass annual testing to ensure they do not disproportionately benefit highly compensated employees. If testing fails and corrections are not made within the required timeframes, the plan could face penalties or even disqualification. Similarly, certain health and welfare plans must meet nondiscrimination standards to avoid adverse tax consequences. Working with experienced third-party administrators and conducting proactive testing can help employers stay ahead of potential failures.
Ensure Forms are Complete and Timely
Another overlooked issue is incomplete or late Form 5500 filings. Most ERISA-covered plans are required to file this annual report. Missing the deadline can result in significant daily penalties. Maintaining a compliance calendar and confirming responsibility for filings reduces the likelihood of costly oversights.
Address Errors Promptly
The good news is that many errors can be corrected through established IRS and Department of Labor programs if addressed promptly. Voluntary correction programs often reduce penalties and demonstrate good faith compliance efforts.
Seek Professional Assistance
ERISA compliance requires ongoing attention and careful oversight. If you have questions about your retirement or health plan obligations, contact our benefits specialists. We will help you identify risks, strengthen compliance processes, and avoid unnecessary penalties.
