6 Human Resource Mistakes And How To Avoid Them.

Everyone makes mistakes, right? Mistakes are part of life you learn and grow from each and every one. It is some say what makes us who we are as a person.

Some errors are less harmful than others, leaving the light on, forgetting to close the garage door, and yet others can have a lasting effect on us.

Billy Buckner letting the ball through his legs in the 86 series letting the stinking Mets rally to win the World Series, can have a lasting, stinging effect on you and others around you, sorry a little off track.

What if we make a mistake at work, sometimes it could cost us our job?

How about employee benefits, HR mistakes?

Mistakes in employee benefits and human resources can be quite costly to employers, in the form of extra benefits, complaints, lawsuits, government-assessed fines and penalties, and attorney fees, to name a few.

Here we take a look at 6 employee benefits and human resource mistakes and how to avoid them:

1. Not timely depositing employee contributions into qualified retirement plans. Employers sometimes wait too long to deposit salary deferrals into a qualified retirement plan. According to the Department of Labor (DOL), such deposits should be made as soon as the contributions can be reasonably segregated from the employer’s general assets, but no later than the 15th business day of the following month.

The 15th business day of the following month is an outside guideline, and deposits must be made sooner if possible. If deposits are not timely made, the DOL and Internal Revenue Service (IRS) may levy fines, penalties and retroactive earnings for late contributions. The deposit rule for salary deferrals applies to all types of employee contributions, including special deferrals (such as catch-up contributions), after-tax contributions and loan repayments.

The DOL has established a safe harbor for employers with small plans fewer than 100 participants at the beginning of the plan year) to timely deposit such employee contributions. Under the safe harbor, if the employer deposits the withheld amounts in the plan no later than the seventh business day following the date the employees would have received the contributions (payday), the employer automatically satisfies the requirement to timely deposit employee contributions.

Solution:

Deposit employee contributions as soon as a possible following issuance of the paycheck from which the contribution was withheld. Employers with small plans should try to take advantage of the safe harbor’s protection by depositing employee contributions within seven business days from the issuance of the paycheck. The DOL’s Voluntary Fiduciary Correction Program (VFCP) offers a method to correct late deposits of employee contributions.

2. Not making matching and profit-sharing contributions on a timely basis. Many employers make the mistake of not making these contributions on a timely basis. If your qualified retirement plan provides for matching and profit- sharing contributions, the deadline for making these contributions and depositing them into

the plan’s trust is determined first by looking to the plan document.

The plan document may contain deadlines for these contributions. For example, the plan document may require matching contributions to be deposited each pay period.

If the plan document is silent on this issue or requires contributions to be made by the date required by law, then the deadline generally will be determined by IRC 404(a). IRC which could include these disclosure rules (maximums are $100,000 and ten years in prison or $500,000 for a company). Moreover, failing to maintain an updated plan document and/or SPD may jeopardize an employer’s chance of success in a legal dispute with an employee over benefits.

Solution:

Have an SPD and plan document prepared for each plan your company sponsors, and keep the documents up to date. In some cases, a simple “wrap document” may suffice to supplement the information provided by the insurance company or TPA. The wrap document fills in the gaps of what you have and what is legally required and can apply to more than one plan.

3. Not communicating SPD changes to participants. ERISA requires notice to covered participants anytime there is a material modification in a plan’s terms, or there is a change in the information required to be in the SPD. If there is a legal dispute over benefits, courts will often enforce the terms of an out-of-date or incomplete SPD rather than the terms of the plan document, in favor of the participant.

Solution:

ERISA allows plan administrators to communicate material changes through a simplified notice called a summary of material modifications (SMM) that limits itself to describing the modification or change. Since there is no guidance on what is a material change, you should err in favor of preparing and distributing SMMs.

At a minimum your SMM should contain: (1) the name of the health plan and the SPD to which the SMM relates; (2) a description of the changes or the substituted language; (3) the effective date of the changes; (4) instruction to keep the SMM with the SPD; (5) an explanation that the SMM and the SPD must be read together; and (6) the name and title of the person to contact with questions.

4. Using the wrong definition of compensation when computing retirement plan contributions. Employees are entitled to receive and make contributions based on the definition of compensation set forth in the plan document, up to applicable limits. Employers sometimes fail to compute profit-sharing contributions based on certain types of compensation (e.g., bonus payments, commissions and service awards), contrary to the plan language.

Failure to comply with the terms of the plan can result in disqualification of the plan. To avoid plan disqualification, employers follow EPCRS correction principles and end up making the extra profit-sharing contributions, plus lost earnings, to make the employee plan accounts whole.

Solution:

Confirm with the administrator of your qualified retirement plan that you are computing compensation correctly. If any changes are made to the plan’s definition of compensation, make sure to communicate the changes to planning service providers.

5. Failure to compare group disability insurance policies. Many employers purchase group disability insurance policies without understanding them. They receive complaints from employees because their disability claims are denied because they are not considered “disabled” per the terms of the policy.

Purchasing group disability insurance policies that do not provide worthwhile benefits when needed by employees is throwing money away on a useless benefit.

Solution:

Choose group disability insurance policies with the assistance of your Accurate Insurance Solutions insurance broker who specializes in these policies Maintaining a health plan that is inconsistent with an HSA. Contributions can be made to an HSA only when the employee is not covered by a general purpose health reimbursement arrangement or health flexible spending account (FSA), or other impermissible coverage.

An employer that provides impermissible other health plan coverage can unintentionally disqualify its employees from making HSA contributions.

Consult with your Accurate Insurance Solutions insurance broker, regarding the design of your HRA, health FSA, and other health plans, to ensure they are HSA-compatible.

6. Failure to recognize deferred compensation. Many employers do not understand IRC 409A, which generally applies after Dec. 31, 2004 to any arrangement that defers compensation more than 2½ months beyond the end of the year in which the individual first had a vested (legally-enforceable) right to the compensation.

A violation of 409A is very costly because it results in taxation of the deferred compensation prematurely (when it is vested, not when it is later paid), along with a 20 percent penalty and interest.

Solution:

Have your deferred-compensation plans, employment contracts and severance-pay arrangements reviewed by an attorney or financial advisor specializing in 409A.

Other common HR mistakes

• Paying severance without a release. By doing so, you are allowing employees to make future claims.

• Failing to conduct exit interviews. Not only will you gain valuable information to make the workplace more productive, but you may also be alerted to any potential claims.

• Using outdated employment applications. Make sure your applications are consistent with the nuances of your state and local laws (such as ban-the-box) as well as general anti-discrimination laws.

• Failing to comply with the requirements of the Fair Credit Reporting Act (FCRA) when utilizing a third-party to conduct background checks, including various disclosures and notices. Many employers fail to provide the written release and disclosure form as a separate, stand-alone document as is required by the FCRA. Class action lawsuits under the FCRA have risen dramatically in recent years.

At Accurate Insurance Solutions Tampa's employee benefits consultants, we help and make sure you avoid these types of crucial mistakes.

We help businesses of all sizes find the right health insurance policies at the best rates. Then we help them manage their plans with a level of service other insurance agencies can’t match.

For instance, we are your HR Director’s and employees’ point of contact. If there’s an issue, we work with the insurance company to get it resolved. We also have an Intranet for clients, where group administrators can post benefits, view links to carriers and enroll new employees online.

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