Once annual enrollment ends, it's a good time to review basic employee benefit plan requirements to avoid common administrative mistakes. The points below summarize frequent errors and practical steps to reduce risk and unnecessary costs.
Common mistakes to avoid
- Out-of-date plan documents. ERISA requires a written plan document; it should be reviewed regularly and amended to reflect new laws or regulations so it remains the governing source if other materials conflict.
- Missing or outdated summary plan descriptions (SPDs). Employers must provide SPDs that meet ERISA content requirements and update them or distribute a summary of material modifications when plan changes occur.
- Covering ineligible people. Including contractors, leased employees, or dependents who have aged out increases costs and violates plan terms; consider periodic eligibility audits.
- Not following plan terms in administration. Eligibility determinations, claims decisions, notices, and appeals must follow the written plan document and any delegated administrator must do the same.
- Incorrect contribution calculations. Make sure employer contributions use the plan's defined compensation (bonuses, commissions, etc.) and apply matching or profit-sharing formulas correctly.
- Failing to adopt a cafeteria plan when offering pretax premium or FSA deductions. If employees pay premiums or FSAs on a pretax basis, a cafeteria plan must be in place before pretax payroll elections are allowed.
- Untimely 401(k) deposits. Employee salary deferrals become plan assets and must be deposited to the trust on a timely basis in accordance with DOL guidance.
- Poor COBRA notice and election handling. Ensure all qualified beneficiaries receive proper notices for every plan subject to COBRA, including dental, vision, and health care FSAs.
Because administration can be complex, many employers work with third‑party vendors or plan administrators to help manage compliance and communications.
For resources on third‑party administration and related coverage options, see Administration of Social and Manpower Programs Insurance.
For bonding or surety needs that sometimes arise with plan fiduciary or payroll responsibilities, see SBA Surety Bonds (Small Business Administration Bonds).
Administrative errors can result in fines, penalties, lawsuits, and employee dissatisfaction. An annual plan self-review or audit, clear procedures for eligibility and contributions, and consistent documentation will help avoid these costly outcomes.
If you want professional help to review plan setup or errors, consider contacting your advisor or talk to an agent for a plan review.
Frequently Asked Questions
When should I update my plan document?
Update it whenever plan terms change or new laws affect plan operations, and review it at least annually to ensure continued compliance.
Who must receive a summary plan description (SPD)?
All participants and beneficiaries covered by the plan must receive an SPD that meets the content requirements under ERISA.
What happens if employee deferrals are not deposited on time?
Late deposit of salary deferrals can create fiduciary liability, require corrective action, and lead to penalties under Department of Labor standards.
Do I need a cafeteria plan to allow pretax health premiums?
Yes; pretax premium payments and pre-tax contributions to FSAs generally require a properly adopted cafeteria plan before payroll elections are processed.