If you administer a qualified retirement plan (e.g., 401(k), 403(b), SEP, SIMPLE IRA, etc.) under the Internal Revenue Services’ (IRS’) guidelines you must adhere to rather stringent compliance requirements.  Non-compliance with the IRS’ guidelines, can result in penalties and fines from audit findings or can ultimately result in the loss of your plan’s tax deferred status. 

System functionality 

Specific compliance requirements can differ by retirement plan type.  However, there are general system functionality needs borne out of these compliance requirements that will exist no matter what specific type of plan is in place. These needs include the ability to: 

  • Determine when an employee is eligible to enroll in a plan.
  • Determine when an employee is vested.
  • Identify which earnings meet the plan’s definition for “compensation.”
  • Calculate contributions to a specific employee’s account via elective deferral (withholding) and employer contribution (matching, safe harbor).
  • Monitor annual contribution and compensation limits set by the IRS.
  • Perform annual testing to determine if the plan adheres to rules as defined in the plan’s document. 
  • Monitor payments made toward an employee’s loan taken against his/her retirement account.

While you may have engaged with a plan administrator to assist with monitoring your adherence to plan requirements, ultimately, the onus of compliance rests with the employer. Further, your employer’s HRMS system serves as the system of record for data needed to monitor compliance.  

Complying with the IRS 

The IRS has published a multitude of resources to assist employers with their compliance efforts.  These documents recommend strong internal controls around the management of qualified retirement plans to provide assurance that the plans are operating properly.  The IRS has also published fix-it guides based on plan design to guide employers in self-correcting issues as they are identified along with tips to assist employers in preventing these issues.

Some scenarios where you may be not adhering to IRS regulations can occur when: 

  • Eligibility for participation was not properly defined.
  • Compensation when calculating employee contribution or employer match are not properly defined.
  • A plan fails to meet certain non-discrimination tests. 
  • Minimum contributions weren’t made in accordance with plan requirements. 
  • Elective deferrals exceed limitations as required by the IRS. 
  • Compensation ceilings were not adhered to when calculating elective deferrals. 
  • Age requirements were not adhered to for catch-up contributions. 

Leveraging the right tool set

There are a number of opportunities with the Sage HRMS suite of tools to assist with 401(k) compliance and reporting. Some of the modules and tools you might use include: Sage HRMS HR Actions, Advanced Employer Match, Crystal Reports and Sage HRMS Alerts and Workflow. Here are a few methods to consider: 

ActivityMethod 
Determine when an employee is eligible to enroll in a plan. 
  • Use Sage HRMS’ Eligible Date in Savings Benefits Plan to document company enrollment eligibility.
  • Create a Sage HRMS Alert notifying HR and/or employee(s) when eligible to participate based on either Hire Date or Eligible Date.
Identify which earnings meet the plan’s definition for “compensation” in payroll.
  • Use Sage HRMS Payroll Include List to identify earnings base for % type deferrals.

Calculate contributions to a specific employee’s account via:

  • Elective deferral (withholding)
  • Employer contribution (matching, safe harbor)
  • Use Sage HRMS Payroll deduction codes to control flat or % type deferrals and employer match by employee.
  • Use Crystal Reports to automate the data load to Plan Administrator.
Handle special employer match calculations and employer match eligibility requirements.Use Advanced Employer Match for Sage HRMS to:

  • Calculate employer match percentages for flat dollar employee contributions.
  • Calculate match as a percentage of employee wages instead of employee contributions.
  • Handle employer match eligibility that is different than the employee contribution eligibility.
  • Calculate employer match based on a frequency other than per pay period (i.e. – monthly or YTD). Note: this is a custom configuration requiring additional programming charges.
Monitor annual contribution and compensation limits set by the IRS.
  • Use Sage HRMS Payroll Common Deduction Limits to monitor employee and Employer ceiling for multiple deductions in the same category (i.e., Roth + Traditional Regular Contribution; Roth + Traditional Catch-up Contribution).
  • Create a Sage HRMS Alert notifying HR and/or employee(s) when Traditional or Roth Contribution limit is close to being satisfied and provide the employee with information for electing Traditional or Roth Catch-Up Contributions (for employees aged 50+).
Perform annual testing to determine if the plan adheres to rules as defined in the plan’s document.
  •  Use Crystal Reports to build an automated Annual Census Report. 
Monitor payments made toward an employee’s loan taken against his/her retirement account.
  • Use Sage HRMS Payroll’s exception report to monitor when the loan’s Ceiling has been met.
  • Use Crystal Reports to automate internal reporting for loan ceiling, deductions, and remaining balance.
  • Create a Sage HRMS Alert notifying HR and/or employee(s) when remaining balance meets a specific criteria ($250 remaining).

 

Register

Discover Paperless Workflow in Human Resources in this Upcoming Webinar

HR Professionals and organizations looking to streamline processes with paperless workflow.Sage HRMS HR Actions is a solution that simplifies the employee data change and performance appraisal processes. Interactive web-based forms replace paper forms, are easy to use, and result in submitted actions that are complete, accurate, and secure. It lets organizations automate the routing, approval, and notification process of employee actions.Attend this webcast to learn how Sage HRMS HR Actions can help you more efficiently.

Register

Related Success Stories

JAYMA DUCHENE
JAYMA DUCHENE
Director of Operations at Delphia Consulting
Jayma has over 7 years of experience supporting HRMS software including experience in writing advanced SQL, configuring and implementing various HR/PR software systems including Sage Abra Suite, Crystal Reports, Sage HRMS HR Actions, and Sage Alerts and Workflow. She received her Bachelor of Science degree from Wright State University.