The Department of Labor (DOL) estimates that three out of four retirement plans they audit have an ERISA violation. In 2010, the DOL audited more than 3,100 plans and found that more than 73% of the plans were out of compliance.
They mandated plan sponsors to restore losses to the plan or take another type of corrective action to correct plan deficiencies. That same year, the DOL added nearly 1,000 employees, with the majority focused on encouraging and enforcing compliance among plan sponsors. It’s no wonder that thousands of companies across the U.S. are looking for a better way to deliver 401(k) to their employees. Many have found that by outsourcing their payroll/HR functions and combining it with 401(k) administration, precious time was recaptured within the business and the 401(k) transactional errors that make up a considerable number of the DOL’s findings were reduced.
There are three types of outsourcing and 401(k) offerings that serve the small to mid-sized business market. The first is a Professional Employer Organization (PEO), a company providing HR, payroll, tax filings, workers’ compensation and benefits administration under a co-employment relationship with small to mid-sized business. PEOs not only help business owners to refocus on the profitability of the business, but they shield and protect that owner from employee-related liabilities such as wrongful termination, sexual harassment, and even fiduciary liability. Since PEOs sponsor a 401(k) for their customers to access and customize for their own employees, this becomes an attractive offering for the plan sponsor tired of increased responsibilities and liabilities associated with their 401(k).
Another popular solution for businesses looking to outsource their HR functions is forming a relationship with an Administrative Services Organization (ASO). Under this model, the ASO provides payroll, benefits administration, tax filings, employee self-serve technology and HR reporting services. Again, the 401(k) program allows the ASO client to choose from plan design options such as matching, vesting, and eligibility that will meet the objectives of their own business, while the ASO assumes the role o
f plan trustee and plan administrator.
Lastly, there are many payroll-processing companies that have partnered with 401(k) administration companies to package an integrated offering for their business customers. Depending on the type of 401(k) offered and the relationship between the payroll company and a Third Party Administrator, this solution can meet the needs of plan sponsors that want administrative efficiencies and compliance with ERISA guidelines. The outsourcing of payroll, once thought to being an alternative to mainstream business practices, has become the norm and is often a starting place for a business that later chooses to outsource more of its human
While businesses have a number of reasons for selecting the HR solutions just described, one common benefit is transactional accuracy. A typical business having 25 employees and a semi-monthly payroll will be responsible for nearly 5,000 payroll transactions each year. The ramifications of incorrect or late tax deposits, employee benefits payments, and 401(k) contributions can be significant and costly for the business and its owners. By outsourcing these functions, the business can focus on its core competency
while complying with the ever-growing list of guidelines and regulations. Plan sponsors all over the country are seeking more information on these integrated solutions and advisors are looking for the right partners to deliver them to their clients.
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