Is your advisor compliance savvy?

Is Your Advisor Compliance Savvy?

Is Your Advisor Compliance Savvy?

Not all advisors are committed to making sure that your retirement 401(k) plan is on track and your process is up to date for the annual compliance report. Have they been available to walk you through the process and provide guidance that could spare you a major headache while saving time and money?

A mid-sized company in the Northeast that employs about 100 union and non-union workers avoided a costly and time-consuming mistake by tapping into their advisor’s fiduciary expertise. Imagine their relief when their advisor spotted discrepancies in the recordkeeper’s data, making an audit unnecessary, essentially saving them $20,000.

“We walked their compliance team through the process to make sure they were signing off on appropriate IRS documents, and navigating through the year-end compliance process,” said Tony McCracken, Newcleus Regional Director – Qualified Plans. McCracken was on a call with the management team and the recordkeeper (Plan Provider) to make sure the company understood the questions and provided the appropriate answers.

“The data the recordkeeper had was showing that they were a large employer which means they have over 120 employees when in reality they only have about 80 eligible for the 401(k).” If the CFO misunderstood the way the data was presented and confirmed the exaggerated size of the workforce, it would have triggered an audit. “The audit,” McCracken said, “would have cost them $20,000.”

As new advisors to the company, “We made several enhancements right off the bat,” McCracken said. “We renegotiated their contract with the recordkeeper, we got costs down and enhanced their Plan’s fiduciary oversight. There are a lot of steps involved in overseeing a 401(k) plan, so we put these pieces in place to mitigate risk.”

Now their plan has an enhanced, less expensive service with more risk mitigation in place for the management team.

The annual year-end compliance testing required by the Employee Retirement Income Security Act of 1974 (ERISA), can be a headache for the management team and compliance division responsible for gathering all of the data and information the IRS requires. Here’s where an accessible and informed advisor can make a difference.

Each year, companies with 401(k) plans are required to produce a year-end compliance test. The IRS’s ADP and ACP compliance testing was designed to make sure that retirement plans are fair across the board and ensure that the average rates of employee contributions and related company matches are proportional between those employees that are highly paid and those that are not highly paid. Failing the compliance test can be costly.

Developing a long-term relationship with the compliance team and management should include comprehensive support throughout the year including:

  • In-person visits more than once a year
  • Helping the HR Director, CFO and compliance team prepare for the compliance test
  • Confirming that appropriate IRS documents are being used
  • Explaining industry trends and 401(k) match to the management team

Preparation and understanding of the process and requirements will help avoid pitfalls, and a relationship with a knowledgeable and accessible Retirement Advisor can provide the direction needed by companies unaware of what’s expected.

As employers look to sharpen their competitive edge for hiring and retaining talent and top performers, enhancing retirement plans has become increasingly important to provide benefits that ensure employee security and well-being in the future. Companies surveyed in WTW’s 2022: The Next Evolution of DC Plans Survey found three out of four plan sponsors in the survey “expect to change their DC plan in the next two years after already having made a change in the last two years.” 

Organizations are refreshing their 401(k) plans to provide more flexibility and innovative ways to help employees oversee their retirement planning. Businesses are seeing the benefits of a good advisory service particularly when they aren’t receiving the support they need to maintain and develop retirement benefits that will keep the new and existing workforce motivated, appreciated and diverse.

Having an overall understanding and handle on ensuring plan compliance is an important part of a plan sponsor’s fiduciary duty. That will help avoid being caught off guard by testing failures, additional tax bills and government filings.

If you are considering changing recordkeepers or plan providers, understand the timeline needed to make the switch and that you’ll need to advise your employees of the changes.

Newcleus Retirement Advisors can take the edge off compliance testing, guide you through plan changes and provide employee education with the concierge-like service needed to get the answers you and your employees require to be satisfied with the retirement plan you have selected.

For more information about how Newcleus Retirement Advisors can remove the uncertainties about 401(k) planning and implementation and guide you through compliance testing, see our website or contact Tony McCracken at


McCracken has worked in the financial and retirement planning industry since 2006 and has helped organizations design and service plans to create successful retirement strategies for their employees.