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CCH® PENSION AND BENEFITS — 06/17/09

IRS posts internal control questionnaire to help plan sponsors, administrators with plan compliance

The IRS's Employee Plans Team Audit (EPTA) program has provided an internal control questionnaire to help plan sponsors and administrators understand the responsibilities and coordination needed to keep plans in compliance with tax laws. The EPTA program consists of examinations of large employer plans by a team of specialists.

The questionnaire, which was developed with outside practitioner input, provides examples of questions asked by EP examiners to acquire an understanding of system procedures and internal controls. The questionnaire is divided up into questions concerning plan failures --internal control impact, plan administration, HR personnel, and payroll.

Plan failures

The IRS explains that EP examiners will often ask questions early in the examination process concerning plan failures. The IRS will be particularly interested in any improvements or enhancements made after plan failures in internal controls and /or practices or procedures to prevent similar errors in the future.

Questions may include:

• What procedures or checks and balances are in place to identify operational failures?
• What operational or form failures occurred and how many years did they occur?
• Have the failures been corrected and how were they corrected?
• What was the reason for the failures?
• What practices/procedures were previously in place and what new procedures have been implemented to avoid future failures?
• Was the current EPCRS (IRS Rev. Proc. 2008-50, CCH Pension Plan Guide ¶17,299S-66) used to assist in determining whether the failure was a self-correctable error?

Plan administration

EP examiners will want to understand the controls related to plan administration, including communications between the plan sponsor, the third-party administrator, and the recordkeeper.

A sample of questions concerning plan administration includes:

• What steps does the employer take to identify all members of the controlled group to the plan administrator?
• Who is responsible for determining that timely plan amendments are done, including "good faith" amendments?
• Who is the custodian of trust assets and how are total trust assets communicated to the trustee?
• Who within the controlled group is responsible for overseeing the day-to-day plan administration?

HR personnel and payroll

The questions are designed to give the EP examiner an understanding of the communications between the HR personnel and the plan administrator and the record system used by the employer to operate the plan. In addition, the questions provide the EP examiner with information on how employee payroll is handled and communicated to the plan administrator.

Questions concerning HR personnel and payroll include:

• What is the process that interfaces the hiring and termination events with benefits delivery?
• If there is more than one personnel or HR department, how are employee records merged for purposes of plan data?
• How is the transferring and the rehiring of employees communicated to the plan administrator, recordkeeper, or other third parties?
• What process is in place to communicate the hours worked by an employee to the plan administrator?
• What controls are in place to make sure that all benefit categories are properly classified?
• When and how are deferrals, loans, or other deductions remitted?
• How are payroll errors corrected, how is the correction communicated to the plan administrator, and how is the record of correction maintained?

Source: IRS website, May 19, 2009.

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