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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The failure of plan sponsors to amend their 401(k) plans is one of the most prevalent compliance errors, according to Monika Templeman, director, IRS Employee Plans (EP) Examinations. Templeman spoke March 6, 2012 at an IRS teleconference discussing the results of the recently released Compliance Check Questionnaire Interim Report on 401(k) plans.
Templeman stressed the importance of improving compliance among 401(k) plan sponsors. "401(k) plans have become the most prevalent form of retirement plans in the United States," Templeman noted. "There are currently more than 500,000 401(k) plans covering approximately 60 million Americans."
Compliance failures
The most prevalent type of error that could disqualify a 401(k) plan is the failure of sponsors to amend it. "The plan document is required to be compliant with current and prior law," said Templeman. This means that, when the tax laws affecting 401(k) plans change, the written plan must be updated. However, the questionnaire showed that many sponsors were unable to locate the necessary documentation that would show the plan had been timely amended. Templeman cautioned plan sponsors to keep track of their documents, which include the original plan document, subsequent plan amendments or restatements, adoption agreements, IRS opinion, advisory or determination letters, and even the sponsor's board of director's resolutions and minutes or similar records related to the plan.
Another common problem is the failure of plan sponsors to comply with the plan document's definition of "compensation." Sponsors must follow the plan document's compensation definition in the actual operation of the plan.
A third problem is the improper distribution of loans to plan participants. Although 65% of 401(k) plans offer loans, these are subject to certain tax requirements that govern, among other things, the repayment period and persons eligible. The data from the questionnaire suggested that many 401(k) plan sponsors offered loans that did not comply with all of these requirements. The data also showed that many employers were not making their matching contributions to the 401(k) plans to all eligible employees. Or, if they were made, the contributions might not be compliant because of an administrator's failure to properly count hours of service or to correctly identify the plan entry date for employees.
Correction programs
Speakers at the teleconference stated that plan sponsors who had made mistakes could often take advantage of the various IRS correction programs available. Among them are the Self-Correction Program (SCP), Voluntary Correction Program (VCP), and Audit Closing Agreement Program (Audit CAP). Templeman stated that the IRS had been pleasantly surprised by the number of those already aware of the correction programs. The questionnaire found that 65% were aware of them, and 57% of respondents were actively using the IRS website resources on 401(k) plans. Nevertheless, she was eager to increase usage of IRS online compliance tools, such as the 401(k) Plan Fix-It Guide. "We really would love having everyone take advantage of this."
Final report
A final report, which the IRS expects to complete by the end of the 2012 calendar year, should provide an important frame of reference for IRS officials charged with improving compliance in the growing 401(k) plan sponsor community.
Source: Monika Templeman, director, IRS Employee Plans (EP) Examinations, speaking at March 6, 2012 IRS teleconference.
For more information, visit http://www.wolterskluwerlb.com/rbcs.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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