Know when you need a belt and suspenders.
Even well run companies can run into snags with checks and balances.
Recently a 500 person company that is very well run found itself in the unusual position of potentially being in default on provisions of its 401(k) plan.
Here’s what happened. Several current employees had not made payments on loans they had taken from the 401(k) plan for several years. As is the norm, the repayment was set up as a payroll deduction. Somewhere along the way the payroll deduction stopped. There is no documentation of why or who authorized it. Once the facts came to light the plan was in violation of several plan and legal provisions that could have jeopardized the plan’s exempt status.
When the employees made an inquiry of people in the accounting department (not HR or payroll) the person they spoke with said, “Well if it stopped, the loan must be paid in full.”
For two fiscal years the plan administration service provider never flagged this as an issue.
The situation came to light when the company decided ( for unrelated reasons) to put the plan’s admin services contract out to bid, and one of the new vendors noticed this discrepancy in their review.
So the moral of the story is check and re-check.
- Know the Importance of checks and balances for your critical processes, especially when fiduciary responsibilities are involved.
- Staff should be trained to be helpful, but must know that they should not answer questions outside of their expertise. Employee training should include keeping an eye and ear out for when a co-worker asks an unusual question and knowing when to pass this along to your manager.