Common ERISA Mistakes That Can Cost a Bundle

November 11 2015 | by Nikki M. Hoffman, CPA

In light of the immense regulatory complexities impacting employee retirement benefit plans, it’s challenging for plan administrators to know if they are in compliance. The Department of Labor (DOL) enforces ERISA compliance through detailed and time-consuming audits and collects more than $1 billion in compliance penalties annually – many of which are preventable. Being fully prepared is key. Even small errors can cause significant and costly problems. Are you making any of these common mistakes?

Mistake #1

Failure to Make Timely Elective Deferral Transfers

Not transferring elected deferrals as outlined by ERISA results in a prohibited transaction or the “use” of plan assets by the plan sponsors – a big “no-no”. Contributions are required to be deposited into the plan as soon as administratively possible. If the DOL determines that you could have made them earlier than you are it will result in penalties.

Mistake #2

Plan for Inconsistencies

The DOL will carefully evaluate your company’s plan procedures and compare them to the plan documents to determine if there are any discrepancies evident. If they discover gaps in policies and procedures and/or inconsistencies between the plan documents and your actual practices you can fully expect to be deemed out of compliance.

Mistake #3

Not Following the Plan’s Eligibility Requirements

Eligibility requirements vary from plan to plan and are generally based on age and service. Plan administrators need to ensure that employees do not participate before they are eligible and that eligible employees are provided with an opportunity to participate. Not following the eligibility rules outlined in your plan is cause for penalty.

Mistake #4

Incorrect Compensation Definitions

Compensation types include base pay, overtime, vacation, bonuses, and fringe benefits. Combine those with the definitions of compensation regarding employee deferrals, employer match contributions and profit sharing contributions and it can become very confusing. If the proper definition is not used when contributions are made, your plan will be dinged by the DOL.

Minimize your risk by implementing specific processes and procedures to help ensure your retirement benefit plan is compliant. Violating ERISA either knowingly or unknowingly can have very serious and expensive consequences. Ultimately you have no control over being audited by the DOL, but you can control your chances of failing an audit.


Amy H.

These seem like common sense, but recent experience has led me to believe simple mistakes are common. No wonder the DOL has such high compliance penalties every year. Compliance is like health – preventative measures are often more effective than remediation!

Nikki Hoffman

I couldn’t agree with you more. Such simple mistakes can lead to difficult situations. Fortunately, remediation is available and if done properly, compliance penalties can be minimized.


Leave a Reply

Your email address will not be published. Required fields are marked *