The clock has struck 2025, time for a new year.

As we step into 2025, it's time to roll up our sleeves and dive back into work with a fresh compliance calendar guiding our way. First on the agenda is confirming the 2024 census data—a vital task to ensure your retirement plan stays in line with Uncle Sam's myriad rules and regulations.

But wait! Why is clean census data so important anyway? Simply put, to prevent mistakes that can jeopardize compliance with governmental requirements. Let's look at the key reasons:

• Compliance: Navigating the labyrinth of IRS, DOL, and ERISA mandates can be daunting. Clean census data is your ally in this endeavor, ensuring that nondiscrimination tests and audits pass smoothly. Without it, you risk failing these tests, leading to avoidable headaches and potential penalties.

• Testing: Dirty data is a recipe for disaster when it comes to nondiscrimination tests. Errors can skew ADP/ACP test results or misidentify top-heavy plans, necessitating time-consuming and costly corrections. Clean data ensures accurate testing, safeguarding your plan's integrity.

• Audits: For 401(k) and ERISA 403(b) plans with over 100 participants, annual audits are a must. These audits, based on the plan's Form 5500, rely heavily on accurate census data. Inaccuracies complicate these tasks, increasing the risk of penalties and compliance issues.

• Employee Relations: Inaccurate data can wreak havoc on employee eligibility, contributions, and account balances. Imagine the chaos of incorrect balances on participant year-end statements. Such errors can lead to communication nightmares, eroding trust and satisfaction with the plan, its benefits, and the company itself.

• Plan Management: Clean data is the lubricant that keeps the wheels of plan administration turning smoothly. Dirty data, on the other hand, causes delays and requires hours of extra work to clean up. With accurate data, processing loans, distributions, and employee-requested changes becomes effortless, instilling confidence in the accuracy of employee records.

Mistakes happen, often creeping in unnoticed. It's crucial to identify and correct them promptly, or better yet, prevent them from occurring in the first place. Plan sponsors bear a fiduciary responsibility to ensure compliance, as plans are established to provide benefits to employees and their beneficiaries. Inaccuracies chip away at this foundational premise.

Culprits to Be Routed Out

Three main culprits are responsible for the most common census errors:

• Compensation: Handling compensation, especially overtime and bonuses, can be a tricky business. Payroll often doesn't sync with document provisions, leading to incorrect deferrals. Correct compensation is also essential for determining which employees are highly compensated for testing purposes. While it sounds simple, in practice, it can be quite complex.

• Eligibility: Determining when employees are eligible to participate in their plan is another key issue. Many plans require 1,000 hours of service, making accurate tracking of hours worked crucial. Starting in 2024, part-time employees working at least 500 hours for two consecutive years will be eligible to defer, adding another layer of complexity.

• Demographics: Missing data, such as hire and termination dates, can wreak havoc on eligibility and testing. Rehire dates and past service credits can be particularly troublesome. Ensuring correct birthdates, name spellings, and Social Security numbers, while avoiding duplicate records, is vital to maintaining data integrity.

Causes of Dirty Data

Despite best efforts, data mistakes persist due to several factors:

• Lack of Oversight: Payroll and HR staff may enter data without verifying its accuracy, leading to inconsistencies. Without standardized procedures, different departments may enter data differently, compounding the problem.

• Manual Entry: Errors like transposing numbers or misspelling names can cause significant compliance headaches. Other errors include incomplete fields, such as missing Social Security numbers, and inconsistent data formatting.

• Outdated Systems: Legacy payroll systems may not be compatible with modern data submission formats, leading to omissions or incorrect entries. This incompatibility can create significant challenges in maintaining accurate records.

• Poor Recordkeeping: Inconsistent tracking of hours, hire dates, and other key information creates data gaps. As a result, TPAs often spend considerable time chasing down details to fill these gaps.

• Miscommunication: Poor communication, or a complete lack thereof, between HR, payroll, and the TPA often results in missing or incomplete information. This slows the review process substantially, as there's little confidence in the accuracy of the data.

The High Cost of Dirty Data

Dirty data—characterized by inaccuracies, incompleteness, or inconsistencies—does more than create headaches for HR, payroll, and TPAs. Fixing these errors is time-consuming, involving extensive back-and-forth communication and rerunning compliance tests. The financial implications are significant:

• Payroll accuracy rates hover around 80%, leaving a 20% error rate that results in an average of 15 corrections per pay period, according to a 2022 study by Ernst and Young.

• Each payroll error costs the company $291 in direct and indirect labor costs, amounting to $78,700 per 1,000 employees annually, as reported by Ernst and Young.

• The IRS fines over 40% of small and mid-size businesses an average of $845 annually for payroll or taxation issues.

• The IRS penalty for a late Form 5500 is $250 per day, up to a maximum of $150,000. Additionally, the DOL can impose penalties of up to $2,529 per day with no maximum.

• DOL EBSA audits of 1,072 employee benefit plans in 2021 found that nearly 69% of plans had errors requiring corrective action or resulted in $499.5 million in fines and recoveries.

Data Scrubbing With Stax.ai

Scrub-a-dub-dub. Once you've done all you can to clean your data, it's time to send it to Stax.ai for the final scrubbing. This crucial step ensures your data is as accurate and compliant as possible, setting the stage for a successful year ahead.

Stax.ai leverages AI to identify discrepancies and correct inconsistencies in participant data, combining automation, client collaboration, and advanced data management in a single platform. By comparing new inputs against historical data, the platform ensures compliance and accuracy at every step.

Stax.ai's centralized collection process pulls data from all corners—payroll systems, HR databases, and other relevant sources—into a unified system. This way, everything's in one place, not scattered across the universe.

How It Works

• API Coverage: The system covers 46% of payroll providers through APIs.

• Document AI: For the remaining 54% of payroll providers, Document AI extracts data from payroll reports.

• Automated Scrubbing: Census data is collected from payroll APIs or the plan sponsor and automatically scrubbed for accuracy as it’s submitted.

• Initial Assessment: Before validation, Stax.ai conducts an initial assessment to profile the data, identifying potential areas of concern such as missing fields, duplicate entries, and inconsistent formats.

• Validation: The data is validated against plan document provisions.

• Real-Time Error Detection: Stax.ai’s system catches errors in real-time, ensuring issues with compensation, eligibility, or demographic data don’t slip through the cracks. Anything that looks off gets flagged for review.

• Error Resolution: Errors are flagged and sent to plan sponsors or TPAs, who can correct the data or request more information through a secure portal.

• Compliance Workflow: Once corrections are made, the updated data is automatically submitted into the compliance testing workflow.

With this approach, Stax.ai ensures that 401(k) census data is not only scrubbed for accuracy but is also ready for compliance testing. The system keeps up with the latest technology, ensuring it’s always at the top of its game. It is constantly updated with the latest 401(k) regulations and requirements to help plans stay compliant with testing and filing requirements.

Stax.ai is also user-friendly, featuring a white-labeled client portal that provides plan sponsors with access to files, tasks, and plan data. The portal enhances communication between parties and reduces the need for back-and-forth exchanges.

Final Thoughts

Stax.ai’s CX system offers numerous benefits for its clients, including centralized client communications, task management, and a secure, SOC 2-compliant environment that ensures safe data management. It saves clients time with automated workflows, increases accuracy, reduces compliance risks, and strengthens client relationships through better collaboration.

Want to see how Stax.ai can revolutionize your operations and unlock new efficiencies? Let’s talk!