Lockton Lists Audit Concerns for 403(b)s

The article, in Lockton’s The Key quarterly newsletter, says the most recent audit results indicate that many plan sponsors administered their plan using a definition of compensation that did not correspond to the definition found in the plan document. This is especially true for plans that were drafted for the first time in 2009.  

In addition, many plans—especially those adopted for the first time in 2009—include blanket language stating that all employees are eligible to participate, but in operation, certain classifications of employees are excluded from participation, in violation of universal availability requirements.  

Another audit concern related to the incorrect calculation of distributions. Plan administrators did not calculate the correct vesting percentage, tax withholding or both. Audits also found problems with hardship withdrawals or loans being issued when the plan document did not allow for them.  

Some 403(b)s governed by the Employee Retirement Income Security Act (ERISA), did not have the required ERISA fidelity bond for those individuals with access to plan assets.  In addition, Mmany plan sponsors are unaware of regulatory compliance requirements and their responsibility for oversight of the plan.  

“The overriding cause behind these issues is the fact that many 403(b) plans are not being administered in accordance with the written plan document,” Lockton noted.