IRS Reports Common Mistakes in Plan Administration
In an era where we all like to see statistic and trends, the Internal Revenue Service has obliged by publishing a list of common recurring mistakes it sees in large case audits of qualified retirement plans. The mistakes were identified through submissions under the Voluntary Correction Program. While this list mainly identifies concerns with qualified retirement plans, it also provides a pretty fair checklist of concerns for welfare plan administrators looking to ensure compliance.
Common Mistakes Across All Retirement Plan Types. This first list covers the general common problems associated with both defined contribution and defined benefit retirement plans. Note that many would apply to welfare plans generally:
- Failure to timely amend the plan document for changes in the law;
- Failure to follow the plan's definition of and limits on compensation for contribution purposes;
- Failure to enroll eligible employees and/or to exclude ineligible employees;
- Failure to meet the legally-required minimum distribution provisions in the plan;
- Failure to follow the in-service distribution provisions in the plan;
- Failure to use correct distribution forms, make timely distributions and file correct tax reporting on distributions;
- Failure to follow the plan's vesting schedule;
- Failure to retain records and maintain internal controls regarding administration of the plan;
- Failure to follow the terms of a qualified domestic relations order (QDRO); and
- Exceeding the legal maximums on contributions and benefits under the plan.
Common Mistakes for 401(k) Plans in particular. A more detailed list is provided specific to 401(k) plans:
- Failure to pass ADP/ACP nondiscrimination testing
- Failure to to provide for minimum top heavy benefit contributions
- Failure to Satisfy IRC 415 limits
Common Mistakes for Defined Benefit Plans. For defined benefit plan, the list includes:
- Benefit calculations based on inaccurate data;
- Failure to provide the required notice when benefits are suspended; and
- Premature or delinquent commencement of benefits.
To access the EPTA Audit Team Compliance Trends and Tips click here. What is interesting about this link is that it also provides a link to the "Correcting Plan Errors" main page which has guides for identifying and correcting plan errors, including a 41 page guide to identifying and fixing common 401(k) errors. Bear in mind that the IRS specifically disclaims providing legal advice and reliance on the guide is not a justification for avoidance of penalties and interest if a subsequent audit does reveal problems with the plan. But as a starting point, plan administrators should at least consider this summary a checklist of useful things to look at and discuss with their plan professionals.
