Introduction: The Importance of Compliance for Midwest Employers
With evolving federal regulations and intensified oversight by the Department of Labor (DOL) and Internal Revenue Service (IRS), 401(k) compliance issues have become a pressing concern for employers across the Midwest. In states like Iowa, maintaining an error-free retirement plan is crucial—not just to avoid penalties, but also to protect employee benefits and employer fiduciary responsibilities.
At WITTROCK FINANCIAL GROUP, headquartered in Spirit Lake, Iowa, we provide proactive retirement plan consulting, including audit readiness, compliance education, and 3(16) fiduciary services. Our mission is to help businesses reduce exposure to retirement plan audits and improve plan operations.
Let’s examine the top 5 401(k) compliance issues that Midwest employers must monitor, supported by local examples and actionable solutions.
1. Untimely Deposit of Participant Contributions
Delays in depositing employee deferrals are among the most frequent compliance failures flagged during audits. The rule: employee contributions must be deposited as soon as administratively feasible—ideally within 3 to 7 business days.
Why It Matters:
- Delays can be seen as misuse of plan assets.
- It reflects poorly on fiduciary management.
- It can result in earnings loss calculations and penalties.
Midwest Case Example: A logistics firm near Sioux City failed to deposit payroll contributions for 6 consecutive pay periods. The IRS imposed penalties and required the employer to restore missed earnings.
Prevention Measures:
- Establish a deposit timeline policy.
- Integrate payroll with your recordkeeping system.
- Perform quarterly internal audits.
2. Failure to Enroll Eligible Employees
Employers are responsible for tracking and enrolling employees based on the plan’s eligibility requirements. Errors in this process are a serious 401(k) compliance issue.
Where It Goes Wrong:
- Mismanagement of part-time and seasonal employee hours.
- HR software not aligned with plan eligibility rules.
- Rehires not reinstated properly.
Example: An Iowa-based agricultural company missed enrolling 18 eligible employees, triggering a DOL correction order with expensive retroactive contributions.
How to Stay on Track:
- Automate eligibility tracking.
- Conduct annual participant audits.
- Outsource eligibility monitoring to a TPA.
3. ADP/ACP Testing Failures
Highly compensated employees (HCEs) should not benefit disproportionately. Annual Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) testing ensures fairness across compensation levels.
Compliance Breakdown:
- High deferrals by executives.
- Low participation by non-HCEs.
- Lack of Safe Harbor design.
Result: Repeated testing failures can attract DOL scrutiny and necessitate refunds or plan redesigns.
Solutions:
- Encourage participation through education and match strategies.
- Adopt Safe Harbor plans.
- Monitor deferral trends quarterly.
4. Vesting Errors and Forfeiture Mismanagement
Accurate tracking of service credit is critical. Misapplied vesting schedules or improper forfeiture allocation raises red flags.
Common Mistakes:
- Incorrect calculation of service years.
- Using forfeitures to fund matches without authorization.
- Overstating vested balances in distributions.
Tip: Conduct regular reconciliations of payroll records and vesting schedules. Engage a third-party administrator to oversee plan document adherence.
5. Incomplete or Incorrect Form 5500 Filings
The annual Form 5500 is the cornerstone of plan reporting. Inaccurate data or omissions invite audits.
Compliance Risks:
- Inconsistent participant data.
- Late submissions.
- Excluding required schedules.
What to Do:
- Hire a retirement plan consultant to review filings.
- Double-check data between TPA and employer records.
- Use electronic systems with built-in compliance alerts.
How WITTROCK FINANCIAL GROUP Supports Midwest Employers
Our team—led by Chip Wittrock (Financial Advisor) and Renne Wittrock (Business Development Manager)—has extensive experience in plan management, ERISA compliance, and audit risk mitigation. Based in Spirit Lake, IA, we serve clients across the Midwest region.
Our Services Include:
- 3(16) fiduciary plan oversight.
- Annual compliance audits.
- Employee education programs.
- Form 5500 preparation support.
Let’s Secure Your Retirement Plan
📧 service@lifeaudit101401k.com
📍 1719 Hill Avenue, Spirit Lake, Iowa 51360
📞 800-725-8780
🕘 Monday – Friday, 8:00 am – 5:00 pm
