It was just after 9 a.m. when the call came in from Allison, a sharp, capable … and flustered CFO I had worked with for years.
“David,” she said, “I am so embarrassed. One of our employees just stormed into my office with her printed-out pay stubs. Her 401(k) deferrals are being taken out—but nothing’s showing up in her account. She asked me, point-blank: Where are my 401(k) contributions?”
“Can you provide me with some background?
“Sure, but I feel a bit foolish. One of our HR Director’s responsibilities was making sure that when a payroll was run, we remitted our employees’ salary deferrals at the same time. And for all the years she was here, we never failed to do that.”
“What changed?”
“Last month she left rather abruptly. Our 401(k) plan is with one of the big bundled providers. I assumed that remitting salary deferrals from our payroll account into the 401(k) plan happened automatically. Now I come to understand we need to actually reach out to the recordkeeper and alert them to pull the deferrals from our account. Otherwise, nothing happens.”
“I’ve heard this story more than once,” I said. “Let me guess. You assumed your recordkeeping company would alert you if the salary deferrals stopped flowing over to them, right?”
“Yes. They handle everything, or so I thought—recordkeeping, compliance, the investment platform. Isn’t that what we’re paying them for?”
“That’s the dangerous assumption,” I replied. “They handle a lot,” but they don’t verify what’s deducted from payroll versus what’s deposited into the plan. That’s still on you.”
Allison drew a long, thoughtful breath. “So nobody catches it if we mess up?”
“Someone will catch it eventually,” I said, “but you don’t want that someone to be your employees or the Department of Labor. It’s safest to work with a TPA who will take the time to compare your W-2 and census data with what gets posted to the recordkeeper. And I don’t mean months later. Those checks should be run as soon as the data comes in. We would have flagged this right away.
“Look,” I continued. “This is more common than you might realize. Companies assume automation means accountability. It doesn’t. That angry employee is a warning sign. Missed deposits lead to corrective contributions, prohibited transactions, penalties, and more headaches down the road.”
“So what do we do now, David?”
“First, fix the immediate problem. Make your employees whole. They’re entitled to their missed contributions plus investment earnings. Some other corrections need to happen as well, but we can take care of that. Then moving forward, let us run the checks. When people’s retirement money is on the line, you don’t want to rely on assumptions. If there’s a problem, we’ll catch it … and no one else will ever know there was a problem.