Stranger Things Have Happened

April 29, 2013

One of the most common operational errors in defined contribution plans is using the wrong compensation to compute contributions. Even payroll programming that was at one time correct can go awry with changes in pay types and pay codes. A brief internal audit is a prudent practice: first, make sure your adoption agreement (if any), plan document, SPD and other plan highlights or summary materials (printed and online versions) are in concert on the definition of compensation. Second, test your own contribution calculations along with select others who have varying types of incentive pay, especially any sales compensation plans, to see if the payroll deductions were made appropriately. Third, verify that the pay being used in any non-discrimination calculations (if you are not a safe-harbor plan) is appropriate as it is also quite common that the wrong pay is used for this purpose.

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Categories: InFocus

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