The Ins & Outs of Employee Benefit Plans: Overcoming the Challenges of Enrollment & Compliance

The article appeared in the March 27, 2018, online edition of Construction Business Owner.

As the construction industry grapples with an industry-wide talent crisis, business owners should start to get serious about using their employee benefit plans as a way to recruit and retain quality talent. There are many factors involved in taking on a hearty employee benefit plan, most notably the fiduciary responsibility to the employees to ensure the plan is running according to specific Internal Revenue Service (IRS) and Department of Labor (DOL) rules and regulations. In order to mitigate the risk of common errors in a plan and to maximize participation among employees, construction business owners need to be educated about the ins and outs of setting up an individual plan.

Challenges with Enrollment

A common issue that construction companies face is the challenge of educating employees about the importance of enrolling in a plan that helps them build for their retirement. To help increase enrollment rates, construction companies should consider taking advantage of auto-enrollment as soon as employees become eligible to participate. Auto-enrollment is an excellent way to increase a company’s participation rate, but business owners should keep in mind that it does not ensure that employees will update and adjust the auto deferral amount (typically 1-3%) or their selected investments to meet their individual retirement goals.

Retirement education is another hurdle that construction companies must overcome when introducing a new employee benefit plan. With the constant employee turnover in the construction industry, it is difficult to hold an annual or even quarterly advisory meeting to discuss the retirement plan as a group. Companies may want to consider an advisor who is more localized so that he or she can make more frequent visits to educate employees as a group, or who can have individualized or virtual meetings with employees.

Once enrolled in the plan, it is common for employees to lose sight of their retirement account and forget to adjust their contribution rate. To account for this, construction companies can implement a yearly automatic deferral increase. Auto increases help employees save for retirement in accordance with yearly pay increases.

Challenges with Compliance

Once a construction company’s employee benefit plan is up and running, compliance is the next big focus. Plan sponsors should be aware of the most common errors that occur when operating a plan, and companies should be sure that terms are being adhered to and that the plan document is regularly updated to account for any new regulatory requirements.

Since construction company employee benefit plans have some unique nuances, it is beneficial for companies to have their plan documents reviewed by an accounting firm to evaluate whether or not the company is running the plan according to the plan documents. If a company is already required to have an audit performed, it is important that it is performed by a qualified independent certified public accountant. The DOL recently sent a letter to retirement plan administrators urging the importance of hiring an experienced accountant to perform audits. The letter highlighted several factors for companies to consider when selecting a plan auditor. Experience, training, license status and peer reviews are all factors to consider when choosing the right auditor for a construction company’s employee benefit plan.

The most glaring error that advisors come across when reviewing plan documents is finding that the company is not using the correct definition of compensation. For example, companies often think that including all wages as compensation is broad enough to help avoid compliance issues, but this method actually tends to open up a can of worms. When all compensation is included, an employee is not allowed to take their bonus free of retirement contributions without special verbiage being added to the plan document.

The inclusion of the Davis-Bacon fringe benefits, which adds a small complexity to a plan if the company pays the prevailing wages as a retirement benefit, is of specific concern to construction companies with federally funded work. Companies need to be sure that the third-party administrator or record keeper correctly tracks these wages separately, as they are typically not included in match calculations since they are not considered compensation.

Conclusion

A robust employee benefit plan is a great addition to construction companies looking to boost employee recruitment and retention efforts. The plan should be designed to provide the greatest benefit to all employees, with features that encourage the maximum amount of retirement savings. Providing access to a financial advisor, offering company match options and offering the option to take out loans from a plan will all appeal to potential employees and can help set a company apart from the competition. However, there are potential pitfalls when it comes to compliance with the plan document, and various rules and regulations that govern employee benefit plans. These pitfalls can be avoided by focusing attention on plan design and operation, and relying on qualified service providers (investment advisors, third-party administrators and accountants) with expertise in this area.