--- title: "Retirement Plan Horror Stories" date: 2014-10-28 author: "Site Admin" categories: - name: "Uncategorized" url: "/category/uncategorized.md" --- # Retirement Plan Horror Stories [![halloween](http://pinnacle-plan.com/wp-content/uploads/2014/10/halloween4-300x262.jpg)](http://pinnacle-plan.com/wp-content/uploads/2014/10/halloween4.jpg)Witches, ghouls, zombies, black cats. Mummies, mice, goblins, and bats. These terrors don’t hold a candle to the some of the horrors we have encountered. In our many years of administering retirement plans, we have seen some very spooky plan mishaps. The common thread of these mishaps is that they occurred in retirement plans that used a bundled arrangement for the design and administration of the employer’s plan. A bundled arrangement is when a retirement plan receives its design, administration and recordkeeping services from the same firm. Bundled service providers often do not spend the time to consult, let alone look at the results of their plan design and testing results to provide appropriate and accurate guidance to plan sponsors. In many cases, bundled providers fail to ask the right questions and plan accordingly for changing and growing businesses. As a result, bundled providers miss or overlook many of the intricate regulations that govern qualified retirement plans, which can lead to costly plan qualification issues for the employer. Conversely, employers that elect to utilize an unbundled arrangement benefit from the expertise of a third-party administrator (TPA). TPAs, such as Pinnacle Plan Design, are highly educated and experienced in the area of retirement plan design and administration, as this is their sole focus. Unfortunately for the employers below, they did not realize the benefits of a TPA until horrible, scary and costly plan errors were already committed. Luckily, it is never too late to employ a TPA. Here are some horror stories that might make you consider calling us before the Grim Reaper comes after your plan! ### Horror Story 1: Failing to File Form 5500 Like many nightmarish experiences with bundled providers, Pinnacle has a tale of an employer failing to file their annual 5500 reports! This tale is of a plan sponsor who misread, misplaced and failed to file three years of 5500 reports. Each year, plan sponsors are required to file a Form 5500 with the Department of Labor. This form reports key facts about the retirement plan to the DOL and the IRS. Some bundled providers send the plan sponsor an email reminding them to review and file their Form 5500 through an online portal. Because the plan sponsor was busy running his company, this email got overlooked, never did they go online, and the form was never filed. Even after the submission deadline had passed, the bundled provider did not follow up to inquire about the missing Form 5500. The following year rolled around and the bundled provider sent again its annual reminder email notice to review and file the Form 5500. Once again, the email was overlooked and the form did not get filed. This happened for three consecutive years, and the bundled provider never once reached out to rectify the situation. Once educated by Pinnacle Plan Design of the employer’s responsibility to file the 5500 annually, the employer faced steep penalties and a potential disqualification of his retirement plan. Once the plan sponsor became aware of the lack of service and proactive communication from the bundled provider, they quickly moved the plan to Pinnacle Plan Design, knowing their Form 5500 will be submitted timely and the owner will be communicated with appropriately. The plan is now back on track. ### Horror Story 2: Discriminatory After-tax Contributions Pinnacle Plan Design had a prospect whose [safe harbor 401(k)](http://pinnacle-plan.com/2014/09/safe-harbor-401k-plans/ "Safe harbor 401k plan") plan was administered by a bundled provider. While reviewing their latest contribution report, Pinnacle noticed that several employees were making after-tax contributions to the plan. Because after-tax contributions must be tested for nondiscrimination using the ACP Test, we proceeded to ask the client for a copy of their ACP testing results. The employer responded, “But this is a safe harbor plan. We were told that we didn’t have to pass that nondiscrimination test.” Pinnacle explained that they were misinformed by their bundled provider and that their safe harbor arrangement did not cover after-tax contributions. The ACP testing did in fact fail, meaning refunds were required and the employer had to pay to correct the errors through the IRS’ Voluntary Correction Program (VCP). In light of this discovery, the employer trusted Pinnacle Plan Design to help them navigate the error-correction process, as well as with the ongoing administration of their 401(k) plan. ### Horror Story 3: Mismanaging the Participant Count Generally, retirement plans with 100 or more active participants are subject to a mandatory annual audit. Thus, plans that are approaching this 100 participant threshold should be monitored closely to anticipate and manage the need for an audit. This was news to an employer that came to Pinnacle after being surprised that his plan required an audit. Sure enough, the employer’s bundled provider was not actively managing the participant count and failed to warn him that an audit would be required. Thus, the annual Form 5500 filing was rejected by the Department of Labor because the plan was not audited in a timely fashion. The firm was penalized with a late fee that increased daily until completion of the audit. When the employer hired Pinnacle Plan Design to take over the administration of the plan, the employer knew that Pinnacle would actively manage the participant count to ensure that: - the participant count would include all eligible participants, and not just the account holders, - the eligibility criteria would be carefully chosen so as to manage the participant count, - terminated participants would swiftly be paid out of the plan, and - the participant count would be monitored to anticipate the need for an audit. This proactive approach was comforting for the employer who had been burned by the bundled provider’s frightening reactive approach. **Summary** When deciding how to manage your 401(k) plan, beware the bundled arrangement. A bundled provider may overlook key details, resulting in a retirement plan horror story like one of these. Instead, hire the detailed eye of Pinnacle Plan Design, and take the fright out of your 401(k) plan. [Robbie Petrillo](http://pinnacle-plan.com/actuaries-plan-administrators/robbie-petrillo/) is the plan opportunity consultant at Pinnacle Plan Design[![Robbie Petrillo](http://pinnacle-plan.com/wp-content/uploads/2013/10/Robbie-Petrillo-Smaller-251x300.jpg)](http://pinnacle-plan.com/wp-content/uploads/2013/10/Robbie-Petrillo-Smaller.jpg) ## Contact Us We look forward to hearing from you! Please fill out this form and we will get in touch with you shortly. NameThis field is for validation purposes and should be left unchanged. Name(Required) First Last Company Email(Required) Phone Message(Required) Submit