Top 3 Retirement Plan Compliance Mistakes — and How to Avoid Them
Employers must meet strict compliance requirements to keep their retirement plans running smoothly. But many struggle with at least one of these common compliance challenges. Learn what they are and how the right provider can help you avoid them.
Keeping your plan compliant is a critical function when offering employees retirement benefits. Plan sponsors face mounting pressure to meet strict compliance requirements, and failing to do so can result in costly penalties, employee refunds or even plan disqualification.
Here are the three most common compliance mistakes and how to steer clear of them.
Mistake #1: Failing to keep compliance coding current
Compliance codes define which employees are eligible to participate in a retirement plan.
They designate employee classifications within the payroll system — company owner, key employee, highly compensated employee (HCE) or non-highly compensated employee (NHCE).
Plan sponsors are responsible for keeping employee data current and accurate, as errors can trigger failed compliance tests and create huge administrative headaches.
What's the solution to lagging compliance coding? Education and clear guidance can prevent errors before they happen. A proactive retirement plan may offer resources like on-demand compliance coding workshops and downloadable coding instructions to help ensure this task is completed on time and correctly.
Mistake #2: Overlooking annual compliance testing
The Employment Retirement Income Security Act of 1974 (ERISA) requires plans to benefit all employees equally, regardless of income or ownership status. Annual compliance testing ensures a retirement plan meets the requirements.
Plan sponsors are tasked with reviewing compliance test results, updating employee data and implementing corrective actions. These actions may include making additional employer contributions, adjusting future contributions or filing corrected returns. Overlooking or mishandling this step can put a plan at risk with the IRS and Department of Labor standards.
How can you stay on top of annual compliance testing deadlines? Some retirement plan providers conduct annual compliance testing, removing the burden from plan sponsors. They provide support in reviewing test results and simplifying the process of correcting data errors and navigating complex regulations.
Mistake #3: Failing to file Form 5500 correctly
Form 5500 provides the IRS and Department of Labor with essential details about a retirement plan, including the number of participants, how the plan is funded and other key information. For calendar year plans, Form 5500 is due on the seventh month after the end of the plan year.
Reviewing, ensuring accuracy and submitting Form 5500 falls within the plan sponsor's domain. Missing this deadline can be costly. And even with extensions, late filings and form errors can result in penalties.
How to ensure the accuracy of your Form 5500? The right retirement plan provider will help prepare Form 5500, offer reminders of upcoming deadlines and deliver an intuitive, guided experience to keep the process running smoothly.
The ADP approach to retirement plan compliance
ADP provides comprehensive resources and support to make compliance more manageable:
- Access a dedicated plan sponsor website with next-generation technology for quick plan administration.
- Keep ahead of potential compliance concerns with real-time insights designed to help minimize surprises at year-end.
- Stay informed with a detailed compliance summary to keep you updated on plan status and what's needed to file Form 5500.
- Tap into our unique plan sponsor resource hub offering on-demand workshops and step-by-step coding instructions.
With the right help, you can focus on developing and retaining great people — and giving them the tools to save for a comfortable retirement. Reach out to an ADP retirement services specialist or call (800) 432-401K to get started.
ADP, Inc., and its affiliates do not offer investment, tax, or legal advice to individuals. Nothing contained in this article is intended to be, nor should be construed as, particularized advice or a recommendation or suggestion that you take or not take a particular action. Questions about how laws, regulations, guidance, your plan's provisions, or services available to participants may apply to you should be directed to your plan administrator or legal, tax or financial advisor.
M-897944-2026-03-09
