Retirement plan compliance might not be the most glamorous topic on a manufacturer's agenda, but it is one of the most consequential. A misstep — even an unintentional one — can mean lost earnings for employees, costly correction programs, and unwanted attention from the IRS or Department of Labor. On a recent episode of the Brown Edwards Manufacturing Minute podcast, I sat down with two of our firm's retirement plan experts — Josh Morrison, Director in our Richmond office, and Brittany Quinn, Partner in our Roanoke office — to talk through the 401(k) issues that matter most to manufacturing companies right now.
Here is what they shared.
The Most Common Plan Types in Manufacturing
When I asked Josh what kinds of retirement plans he most frequently encounters in manufacturing, he pointed to a few core structures. Employee Stock Ownership Plans, or ESOPs, are common — though not universal. More broadly, 401(k) plans with a profit-sharing component are widely used because they give manufacturers flexibility when profitability fluctuates from year to year.
Safe harbor 401(k) plans are also prevalent, particularly in closely held businesses where owners and executives want to maximize their own contributions without triggering annual nondiscrimination testing failures. These plans typically require a minimum employer match — usually around 3% — for every participant.
Brittany also noted that some manufacturers still carry legacy defined benefit pension plans. Most of those are frozen at this point, but they still require ongoing compliance work — something manufacturers should not overlook.
Who Is Actually Running the Plan?
One of the first questions manufacturers should ask themselves is: who owns the day-to-day administration of our plan? The answer is often more complicated than it seems.
Brittany explained that while the plan sponsor — the employer — is ultimately responsible, many tasks get outsourced to a trustee and custodian (who hold the assets), third-party administrators or TPAs (who handle compliance testing, Form 5500 preparation, and plan documents), and investment advisors. Internally, a plan administrator — typically someone in HR or finance — manages day-to-day operations. And if the plan exceeds a certain participant threshold, a CPA firm steps in as the plan auditor.
Josh added an important caveat for manufacturers specifically: payroll, HR, and accounting all touch the plan in some form, which means responsibilities can easily blur. High turnover, overtime, bonuses, and collective bargaining agreements with different compliance terms all add to the complexity. Clearly defining who is responsible for what — and making sure those responsibilities are actually followed — is essential to avoiding errors.
What "Fiduciary" Actually Means
The word "fiduciary" gets used a lot in retirement plan conversations, but what does it really mean in practice?
According to Josh, being a fiduciary means you are legally required to act solely in the best interest of plan participants and beneficiaries. That is not just a philosophical commitment — it carries real obligations:
- Acting prudently and hiring experts when you don't have the expertise yourself
- Following the plan document — it is your roadmap, and everything must align with ERISA guidelines
- Monitoring investments and service providers based on research and documented decision-making — not personal relationships
- Regularly benchmarking fees to ensure they are in line with industry standards
Brittany highlighted a critical misconception here: outsourcing tasks to vendors does not transfer your accountability. You can delegate the work, but you cannot delegate the legal responsibility. That point alone is worth internalizing.
Key Compliance Requirements to Know
Brittany walked through the core compliance requirements manufacturers need to stay on top of. These include annual nondiscrimination testing to ensure the plan does not disproportionately favor highly compensated employees, timely and accurate Form 5500 filing, and proper participant disclosures.
On the disclosure side, Josh noted that participants must receive a summary plan description, summaries of any material plan modifications, fee disclosures, and — for safe harbor plans — annual safe harbor notices. These must be distributed on time, and companies need to be able to prove they did so. As auditors, that is documentation we routinely request.
One threshold worth knowing: 100 participants is the baseline number to keep in mind when it comes to audit requirements, though the 80/120 rule does offer some flexibility around that boundary.
The Most Common Compliance Pitfalls in Manufacturing
When I asked Josh and Brittany about the issues they see most often, a few themes emerged immediately.
Late employee deferral deposits.
Manufacturing payrolls are complicated — overtime, bonuses, multiple shifts — and sometimes contributions do not get deposited into the plan as quickly as they should. The Department of Labor requires that employee deferrals be segregated from company assets and deposited as soon as administratively feasible. There is a seven-business-day safe harbor for plans with fewer than 100 participants, but no such protection for larger plans. Most of our clients are depositing in the two-to-three business day range. If the IRS or DOL sees that you are doing that consistently and then a handful fall outside that window, those could be flagged as late remittances — which can trigger lost earnings calculations and a messy correction process.
Auto-enrollment and auto-escalation issues.
Plans with auto-enrollment features often also include auto-escalation provisions. Keeping up with eligibility requirements, high turnover, and seasonal workers under these structures creates a real administrative burden if processes are not tight.
Compensation definition errors.
Brittany flagged this as one of the most frequent errors she sees — and almost never intentional. It usually comes down to a misinterpretation of the plan document or a payroll code that was not set up correctly. The definition of compensation matters enormously for calculating contributions accurately, and if it is wrong, it can ripple through the plan in ways that take time and expense to unwind.
If you want to go deeper on late contributions specifically, our team has covered that topic in depth on the Brown Edwards BEBenefits Buzz podcast — worth a listen.
What Well-Run Plans Look Like
The best plans Josh sees in practice have a few things in common. They have a strong retirement plan committee that meets regularly — quarterly or semi-annually — to review investment options, encourage participation, and document what is being discussed and decided. They work with quality advisors and TPAs who are actively engaged with plan participants. And they have robust internal controls with clearly defined segregation of duties.
When a well-run plan client comes in for an audit and hands us a documented internal control narrative right at the start, it tells us a lot about how seriously they take their obligations — and it makes the audit process go much more smoothly.
Brittany added that regular training for plan administrators, routine fee benchmarking, and periodic plan document reviews go a long way toward preventing major issues before they arise.
If You Find an Error: Don't Panic, Don't Ignore It
Errors happen. The first piece of advice from Brittany: don't panic. The second: don't ignore it. The IRS and Department of Labor have correction programs specifically designed to help plan sponsors fix mistakes. The Secure 2.0 Act recently expanded the ability for sponsors to self-correct certain operational errors without penalty — as long as the errors are not egregious or related to any misuse of assets.
As Josh put it, the earlier you catch an error and address it, the simpler and less expensive the fix. That is why proactive monitoring matters so much. For clients who may not currently meet the audit threshold but could in the future, we often recommend an agreed-upon procedures engagement. We come in and work through key areas — internal controls, deferral change elections, definition of compensation — so that potential issues are identified on the front end rather than discovered during a formal audit.
Final Thoughts
The theme running through this entire conversation was the same one I come back to again and again with manufacturing clients: be proactive rather than reactive. Establish a retirement plan committee. Strengthen your internal controls. Document your processes and decisions. Conduct regular oversight.
And as Brittany reminded us at the end: your retirement plan is not just a compliance obligation. It is a powerful tool for attracting and retaining talent — something that matters enormously in the competitive manufacturing environment we are all operating in right now.
If you have questions about your retirement plan or want help evaluating your current structure, please reach out to the Brown Edwards team. We are happy to help.
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Melissa Stanley is an Audit & Assurance Partner at Brown Edwards and host of this episode of the Manufacturing Minute podcast.
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