February 3, 2023
Retirement Plan Administration – How Accurate Is Your Data?
The year end has passed and business leaders and office personnel have been working diligently on closing the books for the year end 2022. This process can be time consuming and stressful. Not only have employers been pestered by their accountant, but service providers, such as 401(k) administrators, are also hounding the plan sponsors with various requests and questions. While the task of researching and finding answers to these requests may seem tedious, the accuracy of the data collected throughout the year plays an important role in year-end retirement plan testing and reporting.
While we hope that everyone has been able to wrap up the year-end process for your 401(k) plans, a few missed termination dates, inaccurate date of birth records, or miscalculation of 401(k) withholdings can cause a delay in completing those tasks. Many retirement plan recordkeeping systems have edit checks in place to catch inaccurate data throughout the year, but bad data can slip through the cracks. Incorrect data is not only time consuming to update and correct, but can also be costly with DOL and IRS penalties depending on the severity. The last thing a plan sponsor wants to hear from their administrator is a requirement for additional work and possible penalties.
How is inaccurate data being supplied? Let’s take a look at overall data reporting. Plan sponsors regularly submit payroll data to their retirement plan administrator for each payroll which contains a TON of information. The administrators request names, personal data, compensation, 401(k)/Roth withholding amounts, and employer contributions, if applicable. That’s a lot of information that could potentially be inaccurate. This information generally comes directly from the payroll systems. But what if an incorrect social security number or date of birth was entered into the payroll system to begin with? Not only is the inaccurate data incorrect in the payroll system, but that incorrect information was submitted to the retirement plan administrator which can cause a lot of issues down the line, such as inaccurate DOL/IRS reporting, incorrect distribution codes, and various other issues.
How can the possibility of inaccurate data be eliminated or reduced? While much information continues to be manually entered into the payroll and human resource systems initially (it needs to get in there somehow), there are ways to reduce the likelihood of incorrect information from being reported. This can be a second set of eyes internally, outsourcing service providers to perform background checks/identity verification, and conducting periodic internal audits. Although it may seem these additional tasks can be time consuming and tedious, the potential time and expenses saved down the line will be much more beneficial.
Once the plan sponsor is confident that the information in their payroll system is accurate, they should ensure this information is also correct when reporting to their 401(k) administrator. We highly recommend the plan sponsor not manually input the data when providing the payroll information as this can cause room for error that would put them back at square one. Instead, look into their payroll system to see if a report can be generated directly containing the data needed for your plan administrator (they may need to reach out to their payroll provider to generate this type of reporting). This information can then be directly uploaded into the plan’s administration system and ensure accurate data for their retirement plan.
Here at Greenleaf Trust, we are taking an additional step to help reduce inaccurate data from being supplied by utilizing a process known as payroll integration. This process involves a direct link up from the payroll provider’s software to our internal recordkeeping system, creating a hands-off approach for employers.
To conclude, inaccurate data not only causes additional work and time to resolve but could result in costly penalties depending on the severity of the issue. Implementing reviews, edit checks, and automation can greatly reduce the risks of reporting inaccurate data. Save yourself some time (and potentially A LOT of money) by reviewing what you are providing to your service providers, specifically your retirement plan administrator. You will thank yourself later. The Retirement Plan Division at Greenleaf Trust strives to make the process of administering a retirement plan as accurate, efficient and beneficial as possible for our clients.