Consider Periodic Internal Plan Audits to Ensure Proper Application of Plan?ÇÖs Definition of ?Ç£Compensation?Ç¥

A frequent, but often times avoidable, operational error for retirement plans is the failure to use the proper definition of compensation for various purposes, including, without limitation, calculating employee deferrals and employer contributions. A retirement plan?ÇÖs definition of compensation typically includes dozens of components that all must be properly coded in the plan sponsor?ÇÖs payroll system as eligible or ineligible plan compensation. Plan sponsors should periodically compare the plan?ÇÖs definition of ?Ç£compensation?Ç¥ to the employer?ÇÖs payroll records to verify that the proper definition of compensation has been used for all plan purposes, including calculating employee deferrals and employer contributions. Performing such an audit can help identify any errors and help to minimize the amount of any corrective contributions and other fees and expenses that may be associated with correcting the error.