Armanino Blog

Common 401(k) Errors: The Importance of Accurate Employee Census Data

by Patrick Carvey
March 09, 2021

Updated February 2, 2022

Did you know the listing of individuals employed by the plan sponsor, known as the “employee census,” is a critical part of your employee benefit plan compliance? Whether you have a small employee benefits plan with five employees or a large plan with 15,000 employees, proper census data collection is critical.

  • Auditors rely on the employee census when testing contributions, distributions and other transactions affecting participants.
  • The plan’s recordkeeper relies on the employee census when processing transactions.
  • The plan’s third-party administrator relies on the employee census when performing annual compliance and nondiscrimination testing.

Having an incorrect hire date or term date, if unidentified or uncorrected, could result in the entire employee benefit plan becoming disqualified. Making sure you understand the key components of an employee census will make managing your employee benefit plan more efficient. In addition, it will help to ensure that the reports and transactions processed by your service providers are accurate, timely and complete. The following are four key components to include in your employee census data:

1. Employee Information Sufficient to Identify Each Employee

Generally, this includes full legal name plus either an employee identification number or the last four digits of the employee’s social security number. Remember to use caution when retaining or sending any sensitive identifying information.

2. Employee Demographic Data

Examples would include the date of birth, date of hire, date of termination and the number of hours worked in the current year. Often plans include a required period of service and/or age before employees may participate in the plan. Certain distributions are limited to terminated employees or based upon meeting a specified age. For employees with a break in service, re-hire dates should be tracked and included in the employee census.

3. Annual Compensation, as Defined by the Plan Document

Annual compliance testing is conducted using employee and employer contributions to the plan compared against compensation, as specified in the plan document. Issues can arise as the defined compensation is often different than gross wages extracted from the payroll register. For example, plan compensation may exclude bonuses or compensation earned while not eligible to participate in the plan. The employee census should reconcile to gross wages in the payroll register but should take into conversation the compensation amounts specified in the plan document.

4. Employee and Employer Contributions

Amounts funded to the plan from both employees and the employer should be included in the employee census. These amounts should reconcile to the annual trust report provided by the custodian or trustee and to the payroll register. Accurate employee and employer contributions amounts assist both the plan auditor and third-party administrator to ensure that all contributions have been properly remitted to the plan.

The Bottom Line

Compiling and maintaining a complete and accurate employee census allows plan service providers and auditors to proactively identify and address compliance issues. Assembling employee census data from numerous systems or data sources adds additional complexity which can make plan compliance more challenging to monitor. Plan administrators should make sure not to underestimate the effort and complexity of maintaining a complete and accurate employee census.

Is Your 401(k) Plan Fully ERISA-Compliant?

The employee census is just one of many areas you need to keep an eye on. But ERISA and IRS requirements related to employee benefits are complex and evolving, so it can be hard to even know if you have a problem. To keep your company on the right side of the law, contact our Benefits Plan Audit experts today for knowledgeable guidance to help you protect the integrity of your plan.

Stay In Touch

Sign up to stay up-to-date with the latest accounting regulations, best practices, industry news and technology insights to run your business.

Related News & Insights
Emerging HR Trends 2024 Webinar
Get Insights to the Top HR Trends from Our Experts

June 26, 2024 | 10:00 AM - 10:30 AM PT
New California Employment Laws for 2023 and What You Can Do to Be Compliant
Employers need to know how these laws affect paid sick leave, wages and salaries, cannabis use and more.

April 18, 2024
Updated April 17, 2024
Employee Retention Credit (ERC)
The CCA increases the credit and allows PPP borrowers to take advantage of it.

February 02, 2024