As their broker, your clients are looking to you for guidance in many areas -- selecting the most engaging benefits, staying up to date on policy and regulation changes and making sure their decisions make sense for their business.
Part of that is helping them avoid benefit mistakes that could have costly consequences. There are a few mistakes that can cost your clients money and even cause employees to leave the company.
Here are a few common costly benefits mistakes and what you can do to help your clients avoid making them.
Not depositing contributions in a timely manner
According to the Department of Labor, salary contributions to qualified retirement plans should be made as soon as reasonably possible, but no later than the 15th business day of the following month. Additionally, matching and profit-sharing contributions are held to deadlines defined in the plan document or IRC 414(a), which defines it as the employer’s tax return due date for that year.
Failure to deposit contributions in a timely manner can lead to fines and penalties from the IRS. Encourage your clients to make their contributions in a timely manner, and to be aware of their unique matching/profit-sharing contribution deadlines.
To avoid missing a salary contribution, encourage clients to deposit the contributions as soon as possible after the issuance of the paycheck. If they have missed a contribution deadline, direct them to the Department of Labor’s Voluntary Fiduciary Correction Program to correct it.
Incorrectly computing contributions
The standard matching formula that your clients likely adhere to is as follows: Matching 50 cents for each dollar an employee contributes, up to 6% of compensation -- this results in a maximum contribution of 3% of compensation. However, sometimes when this is calculated on payroll to payroll basis, the matches can end up incorrectly computed. Let’s look at an example:
- Employee A earns a $60,000 salary and makes a 6% contribution for 12 months, contributing $3600 over the year. The employer will match $1800, which is 3% of compensation.
- Employee B also earns a $60,000 salary but makes a 12% contribution for 12 months, also contributing $3600. But when contributions are computed on a payroll to payroll basis, this employee only gets a match of $900, which is 1.5% of compensation.
Contributions are also often mis-computed similarly when individuals receive large bonuses and request the maximum be withheld from the bonus. Ask your clients if this is the case for them. If so, they may be able to correct it with either a make-up contribution at the end of the year or an IRS-approved correction method. Either way, it’s important to bring up the subject with clients as they may not know they are making this error and could potentially face IRS fines.
Late enrollment into retirement plans
All employees who work at least 1,000 hours in a 12 month period are eligible for enrollment into retirement plans, so long as they meet company-specific requirements such as age or tenure of employment.
Making the mistake of wrongly excluding individuals from a retirement plan can have major consequences. First, it can cause the plan to lose its tax-qualified status. Second, it can cause a financial headache if discovered through an audit, as the DOL or IRS will require retroactive contributions immediately. Third, it can cause employees to lose trust in their employers and possibly leave the company.
Set regular reminders for your clients to review their employees’ eligibility to make sure enrollment is offered to all qualified employees as soon as possible.
Failing to compare group rates and policies
When it comes to selecting plans, your clients are likely either overwhelmed by the number of choices or unaware of the options available to them. Not comparing group rates and policies can leave organizations paying way more than necessary for plans or offering policies that don’t meet employee needs.
That’s where you come in as their broker. Help guide them to the options available to them, and the technology that will help them choose and execute their policies most efficiently. Brokers can not only help clients avoid costly benefit mistakes but can streamline and simplify the benefits process.