Offering a retirement plan is a great way to attract and retain employees, but it also comes with compliance responsibilities. Employers must follow federal regulations to ensure their retirement plans meet legal, tax, and fiduciary requirements.
Failing to comply can lead to penalties, audits, and potential legal issues. This guide will help employers understand:
✅ Key compliance requirements for retirement plans
✅ The role of ERISA, the IRS, and the DOL
✅ Common compliance mistakes to avoid
✅ Best practices to stay compliant
1. Understanding ERISA and Retirement Plan Regulations
The Employee Retirement Income Security Act (ERISA) sets the foundation for retirement plan compliance. It ensures that plans like 401(k)s, 403(b)s, and pension plans are managed fairly and in employees’ best interests.
Key ERISA Requirements for Employers:
✔️ Fiduciary Duty: Employers must act in employees’ best interests when managing retirement funds.
✔️ Reporting & Disclosures: Employers must file Form 5500 and provide Summary Plan Descriptions (SPDs) to employees.
✔️ Nondiscrimination Testing: Ensures retirement benefits don’t favor highly compensated employees (HCEs) over others.
💡 Plans Covered by ERISA:
401(k) plans (Fidelity 401k, Voya 401k, Lincoln Financial 401k)
403(b) plans (for nonprofit and public sector employees)
Pension plans (CalPERS retirement, public employees retirement systems)
2. IRS Compliance for Retirement Plans
The IRS regulates tax benefits for employer-sponsored retirement plans. To remain compliant, employers must:
✅ Follow contribution limits (2024 Limits: $23,000 for 401(k), $16,000 for SIMPLE IRAs).
✅ Ensure timely deposits of employee contributions.
✅ Perform annual compliance testing for 401(k) plans.
Key IRS Compliance Tests:
✔️ Actual Deferral Percentage (ADP) Test – Ensures HCEs don’t contribute too much compared to non-HCEs.
✔️ Actual Contribution Percentage (ACP) Test – Examines employer matching contributions.
✔️ Top-Heavy Test – Ensures a small group of employees doesn’t control most of the plan assets.
3. Department of Labor (DOL) Regulations
The DOL enforces laws that protect employees’ retirement benefits. Employers must:
✔️ Follow ERISA fiduciary rules to act in employees’ best interests.
✔️ Provide required disclosures (like annual fee disclosures).
✔️ Ensure timely reporting of contributions (late deposits can trigger penalties).
4. Common Retirement Plan Compliance Mistakes
Missing Form 5500 Filing: Required for most employer-sponsored plans.
Late Employee Contributions: Must be deposited as soon as possible after payroll.
Improper Plan Documentation: Plan documents must be updated to reflect regulatory changes.
Failing Non-Discrimination Tests: Leads to required refunds or adjustments.
5. Best Practices for Retirement Plan Compliance
✔️ Work with a Plan Administrator: Third-party administrators (TPAs) help manage compliance.
✔️ Conduct Annual Compliance Audits: Regularly review plan operations.
✔️ Educate Employees: Provide clear information about plan benefits and rules.
✔️ Stay Updated on Regulation Changes: Federal laws and limits change frequently.
Final Thoughts: Staying Compliant with Retirement Plans
Retirement plan compliance is essential for avoiding penalties and ensuring employees receive their rightful benefits. By understanding ERISA, IRS, and DOL rules, employers can confidently manage their retirement plans while maximizing tax advantages.
Need Help Managing Retirement Plan Compliance?
At Admin316, we help businesses navigate retirement plan regulations, ensuring compliance with 401(k), SIMPLE IRA, and SEP IRA plans.
👉 Contact us today to stay compliant and protect your business!
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