Salary Deferrals: Best Practices for Retirement Plan Sponsors

Managing salary deferrals is a critical responsibility for businesses offering retirement plans. These contributions, which are taken from employees' paychecks and invested into retirement accounts, help provide long-term financial security for plan participants. However, delays or errors can lead to legal trouble, financial loss, and a breakdown of trust between employers and employees. 

So, it's important to get salary deferrals right, both for you and your employee. And this guide will help you do just that. Let's take a look! 

Why Timely Salary Deferrals Matter 

Failure to manage salary deferrals properly can result in serious challenges. Understanding what's at stake is crucial: 

• Legal Compliance: Federal guidelines require salary deferrals to be kept separate from business assets and deposited into employee accounts within defined timelines. Delays can lead to Department of Labor penalties and loss of the retirement plan's tax-favored status. 

• Financial Impact: Delayed deposits may result in missed investment earnings that employees rely on for retirement growth. Handled incorrectly, deferrals can also cause tax complications for both the employee and the employer. 

• Employee Trust: Your workforce expects proper contributions to secure their financial future. Failure to do so can damage their trust in you as an employer.  

Common Challenges in Salary Deferral Administration 

Plan sponsors often face obstacles that complicate compliance. The most frequent issues include: 

• Lack of coordination between payroll departments and plan administrators 

• Insufficient internal processes for tracking and meeting deadlines 

• Reporting errors that disrupt the calculation of accurate deferral amounts 

• Limited knowledge of legal and regulatory requirements 

Without proactive solutions, these challenges increase risks, creating potential for penalties, audits, or disputes. 

Best Practices for Managing Salary Deferrals 

Plan sponsors can streamline salary deferrals through efficient strategies and tools designed to maintain compliance and improve operational workflow. Consider the following actions: 

• Establish a Compliance Calendar: Use scheduling tools to track critical deferral deadlines and stay ahead of regulatory timelines. 

• Conduct Regular Audits: Review internal processes to ensure contributions are calculated, forwarded, and invested accurately. 

• Standardize Payroll and Administrative Coordination: Ensure payroll systems are synced with plan administrators, so deferrals are processed without delays. 

• Train Staff in Regulations: Educate employees responsible for payroll and retirement plan management on the importance of timely deferrals and legal requirements. 

• Third-Party Administration Support: Partnering with a specialized retirement plan administrator removes guesswork, reduces risks, and ensures consistent compliance. 

How RPCSI Can Help 

RPCSI supports plan sponsors through tailored solutions designed to simplify retirement plan operations. From compliance calendars to consultation services, RPCSI offers tools and resources that protect employers from penalties while promoting employee satisfaction. 

By partnering with RPCSI, plan sponsors gain confidence that their deferrals are handled with precision, freeing internal teams to focus on other priorities. For guidance, audits, or to enhance your deferral processes, contact RPCSI today for a consultation. 

Final Thoughts 

Salary deferrals are far more than payroll adjustments. They are a commitment to employees' financial well-being. By following best practices and utilizing specialized support when needed, plan sponsors can secure the future of their retirement plans for both employees and the business.