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CCH® PENSION — 03/24/11

IRS provides compliance tips for employers with pre-approved retirement plans

In Retirement News for Employers, the IRS sets out some tips for employers who have adopted pre-approved retirement plans. There are two types of pre-approved plans: Master and Prototype (M&P) and Volume Submitter (VS) plans. M&P plans are categorized as either standardized or non-standardized.

The IRS notes that, regardless of the type of retirement plan or pre-approved plan, the employer is responsible for making sure that the plan complies with all the legal requirements. In so doing, the employer needs to understand the service agreement and adoption agreement, pay close attention to all communication from the pre-approved sponsor and administrator, coordinate with the payroll processor, and periodically review the plan document and operations.

Service agreement

The service agreement outlines plan responsibilities for the employer and the pre-approved plan sponsor. To make certain they understand their service agreement, the IRS says that employers should ask the following questions:

• Who is responsible for updating the plan document for any law changes?
• Who will administer the plan - the pre-approved plan sponsor or a third party?
• Who gives any required plan notices to the participants?
• Who files required forms and returns with the IRS or the Department of Labor?
• Who determines whether any nondiscrimination testing will be required?
• Who conducts any required nondiscrimination testing, and when will the testing be done?
• Where will the plan accounts be maintained? What are the fees for those accounts?
• How will the funds be invested? What are the fees associated with the investments?
• If something goes wrong and the plan becomes noncompliant, how will the pre-approved plan sponsor or a third party assist in bringing the plan back into compliance and at what cost?
• What information does the employer have to give to the pre-approved plan sponsor or administrator and when must it be provided?
• What other services is the employer entitled to under the agreement? An annual compliance check?
• What fees will the employer be charged by the pre-approved plan sponsor or third party?
• What are the employer's remedies if the pre-approved plan sponsor doesn't provide the services detailed in the agreement?

Adoption agreement

If the employer signed an adoption agreement outlining the plan feature choices, this becomes part of the plan and the plan must be operated in accordance with its terms. An adoption agreement may include when employees are eligible to participate in the plan; the types and amounts of contributions allowed by the plan; how employer contributions are allocated; and the vesting schedule and distribution options.

Communication with pre-approved sponsor and administrator

The IRS urges employers to pay close attention to all communications from their pre-approved plan sponsor and administrator, make sure they fully understand these communications, and promptly provide any requested information. The employer should keep the opinion or advisory letter for its pre-approved plan and must promptly sign any plan amendments sent by the pre-approved plan sponsor (if a signature is required). If the sponsor signs amendments on the employer's behalf, copies of these amendments should be sent to the plan administrator.

Coordination with payroll

The IRS says that employers should make sure their payroll processor has a copy of their plan and any amendments, and understands and correctly implements them. Employers should make sure that the payroll processor uses the definition of compensation specified in the plan for contribution purposes and maximum limitations; timely deducts the correct amount of employee contributions; and deducts the correct amount of any loan repayments.

The IRS also reminds employers to timely notify their payroll processor of any newly eligible employees who have enrolled in the plan as well as any required elective deferral suspensions for employees who have taken hardship withdrawals.

Plan review

The IRS urges employers to periodically review their plan document and plan operations to determine whether:

• The existing plan is still right for the employer's business;
• There are there other features that can be added to the plan, such as an auto enroll feature or a designated Roth account;
• The plan is operating according to the plan document's terms; and
• The plan has been updated for current law.

Source: IRS Retirement News for Employers, Winter 2011 edition, February 23, 2011.

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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