Plan sponsorship is a fiduciary role, and ERISA fiduciary liability is personal. It does not stop at the entity, it is not discharged by hiring a recordkeeper, and it is measured against a standard — the prudent expert — that is higher than ordinary business judgment.
Most plan failures are not investment decisions gone wrong. They are administrative: a compensation definition applied inconsistently, deferrals deposited late, an eligibility date missed, a notice not sent. These are correctable, but correction costs money and grows more expensive the longer the error runs.
Employee elective deferrals become plan assets as soon as they can reasonably be segregated from the employer's general assets. Until they are deposited, the employer is holding plan assets — and using plan assets is a prohibited transaction.
The regulatory outer limit is the 15th business day of the month following the month of withholding. This is not a safe harbor. The DOL has been explicit that it is a maximum, not a permitted practice, and the actual standard is "as soon as administratively feasible." If you can deposit in three days, three days is your standard — and the DOL will measure you against your own fastest historical deposit.
Small plans — fewer than 100 participants at the start of the plan year — have an actual safe harbor: deposit within seven business days of withholding and the deposit is deemed timely.
Late deposits require correction: deposit the deferrals, calculate and deposit lost earnings, file Form 5330 and pay the excise tax on the prohibited transaction, and report the late deposits on Form 5500 — where they are the single most reliable trigger for a DOL inquiry. Correction under the Voluntary Fiduciary Correction Program is available and generally advisable.
Audit your deposit lag quarterly. It takes ten minutes and it is the highest-yield control in plan administration.
Two routes: refund excess contributions to highly compensated employees, or make a qualified nonelective or qualified matching contribution to non-highly compensated employees. Refunds made within 2½ months after the plan year end avoid the 10 percent employer excise tax; refunds after that date do not, though the plan remains qualified if corrected within 12 months.
Safe harbor plans are exempt from ADP and ACP testing, and — where the only employer contributions are safe harbor contributions — from top-heavy minimums as well. For plans that consistently fail testing, converting to safe harbor design is usually cheaper than the annual refund cycle, and considerably less irritating to the executives receiving the refunds.
The 408(b)(2) disclosure deserves attention because it runs the other direction: your service providers must disclose their compensation to you, and if they do not, continuing the arrangement is itself a prohibited transaction. Confirm you have received and reviewed these.
ERISA imposes four core duties:
Establish a fiduciary committee with a written charter, defined membership, and documented meeting minutes. Prudence is a procedural standard — you are judged on your process, and minutes are the only evidence that a process existed.
Adopt an Investment Policy Statement and actually follow it. An IPS you deviate from is worse than none.
Review investments on a regular schedule against the IPS criteria, documenting decisions to retain, watch, or replace.
Benchmark fees periodically. Excessive fee litigation is the dominant category of ERISA claims, and the defense is a documented, periodic comparison — not a subjective belief that fees are reasonable.
Maintain an ERISA fidelity bond covering every person handling plan funds, at 10 percent of plan assets, with a minimum of $1,000 and a maximum of $500,000 — or $1,000,000 where the plan holds employer securities. A missing bond is reported on Form 5500 and is an easy finding.
Distinguish fiduciary from settlor functions. Deciding to amend, merge, or terminate a plan is a business (settlor) decision, and those expenses generally cannot be paid from plan assets. Administering the plan is fiduciary.
The most common operational failure by a wide margin. The plan document defines compensation for deferral and match purposes, and payroll must apply that exact definition. Bonuses, commissions, overtime, taxable fringe benefits, and severance are each included or excluded depending on the document. A mismatch between the document and payroll configuration produces a failure affecting every participant, every pay period, often for years.
Pull the plan's compensation definition and reconcile it against your payroll earnings codes. Annually.
Employees who should have entered and did not, usually rehires, transfers between entities, or employees who changed classification. Note the long-term part-time employee rules, which require plans to permit deferrals by part-time employees meeting a consecutive-year service threshold. [VERIFY the current requirement — the number of years and effective dates have changed under successive legislation.]
An employee who elected to defer but was not enrolled. Correction generally requires a qualified nonelective contribution representing a portion of the missed deferral, plus the missed match and earnings.
Service computation, particularly for rehires, and forfeitures not applied correctly.
Forfeiture accounts must be applied in accordance with the plan document and generally cannot be allowed to accumulate across years. Unused forfeiture balances are a routine audit finding.
Loans exceeding the limits, missed payments not cured within the permitted period, and deemed distributions not reported.
The DOL has published guidance on required search steps, and an unresolved population is an audit target.
Most operational failures are correctable through the Employee Plans Compliance Resolution System, which offers self-correction for many failures without IRS filing, and voluntary correction with a filing for larger or older ones. Self-correction is dramatically cheaper. Find failures early.
Large plans must attach an independent qualified public accountant's audit report to the Form 5500. Participant counting methodology for this threshold changed in recent filing years, and the change moved a meaningful number of plans out of the audit requirement. [VERIFY the current threshold and counting method.]
Whether or not an audit is required, the Form 5500 is a public document and is data-mined by both agencies and plaintiffs' firms. Late deferral deposits, a missing fidelity bond, and unusual fee figures all draw attention.
As soon as they can reasonably be segregated from the employer's general assets. The 15th business day of the following month is a regulatory outer limit, not a safe harbor. Plans with fewer than 100 participants have an actual safe harbor of seven business days.
Correct by refunding excess contributions to highly compensated employees or making qualified contributions for non-highly compensated employees. Refunds within 2½ months of plan year end avoid the 10 percent employer excise tax.
The last day of the seventh month after the plan year end — July 31 for calendar-year plans — extendable to October 15 by filing Form 5558.
Yes. ERISA fiduciary liability is personal and is not eliminated by delegating administration to a recordkeeper. It is mitigated by a documented prudent process, appropriate delegation to qualified experts, and fiduciary liability insurance — which is distinct from the required fidelity bond.
Applying a compensation definition that differs from the plan document. Reconcile your payroll earnings codes against the plan's definition annually.
It depends on the participant count at the start of the plan year, and the counting methodology changed in recent filing years. Confirm the current threshold and method before assuming your prior-year status carries forward.
Deposit deferrals fast and audit the lag quarterly. Reconcile the plan's compensation definition against payroll every year. Hold documented fiduciary committee meetings and benchmark fees on a schedule. Those three habits prevent most of what actually goes wrong — and when something does, find it early enough to self-correct.
For structured instruction, explore our Retirement Plan Administration Training, work through the Retirement Plan Checklist, or review the Glossary of Retirement Plan Terms.
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