Tempus Fugit! Timeliness Key for Plan Audits

John Iekel 

Timeliness matters regarding a plan audit. But if you think that just means having everything ready on time, you may already be too late. 

The time to be concerned about timeliness is well before the date of a plan audit, argues Kevin Nardone in a recent entry in the EisnerAmper blog. Nardone, Director in their Private Business Services Group, stresses the importance of timely performance of plan functions in the first place, such as remitting deferrals on time. 

Not everyone heeds this counsel nor puts a priority on being timely. In fact, Nardone says, one of the most common mistakes in plan operation is not making remittances into the plan on time. And that has consequences, he warns, writing that remitting employee deferrals or failure to do it at all are excellent ways to earn attention from the Department of Labor. Identifying either or both of those errors is a necessary first step if one is to correct the errors and make changes to procedures so as to not have them happen again. 

Another error is the failure of a plan sponsor to withhold money from employees in accordance with the deferral elections, says Nardone. 

The Consequences

If there are late remittances and missed contributions, lost earnings must be calculated and deposited into the accounts of the participants affected. In addition, says

Nardone, a 15% excise tax based on the lost earnings must be paid. And, he adds, missed contributions are considered a prohibited transaction and must be reported on Schedule H of the Form 5500. 

Also, under Department of Labor regulations, a large gap between the quickest remittance period and longest remittance period may require that lost earnings be calculated in order to reimburse employees for delays in employee deferrals being put into the plan.

A Suggestion

One can identify whether there was a delay in transmitting deferrals to the plan custodian or if they were not made at all, says Nardone, by using a timeliness schedule—by which one can compare employee deferrals to amounts remitted into the plan.

A timeliness schedule includes:

• Reviewing a payroll report for each pay period that indicates all types of employee deferrals for the plan’s fiscal year, the applicable pay period and the pay date. 
• Making sure that the timeliness schedule includes off-cycle payroll runs and non-sequential or second-check runs.
• Obtaining a contribution report from the plan’s custodian and the plan’s recordkeeper.
• Comparing employee deferrals to the amounts the plan’s recordkeeper and custodian received.
• If discrepancies are found or there are unreconciled amounts, comparing amounts withheld from payroll to amounts remitted on specific dates at the participant level, rather than the plan level, which Nardone said would isolate any differences that are discovered. 

Nardone cautions that it is not enough to simply determine that deferrals correspond to amounts the recordkeeper and custodian received; one also should determine the number of days between amounts withheld from paychecks and when they were deposited into the plan. 

Nardone further suggests that timeliness schedules from one year be compared to those of the previous, to identify trends and help ensure that procedures are in place to make sure that timeliness is not an issue.