Retirement Plan Audit Maintenance
It is a good idea for employers to self-audit their retirement plans by hiring an experienced professional to determine if there are any problems – before they hear from federal examiners. Here are six common operational faults found by the IRS and the U.S. Department of Labor:
1. Late Deposit of Deferrals. Many employers do not realize that employee salary deferrals must be deposited as soon as reasonably possible into the retirement plan after a pay date.
2. ERISA Violations. Section 404(c) of ERISA permits retirement plans to transfer the responsibility and liability for selecting investment options to participants if certain requirements are met. Many employers believe they will be afforded protection for participants’ investment decisions under this provision. However, many plans do not comply with the requirements of Section 404(c).
3. Employee versus Independent Contractor. There are strict rules to determine whether a worker is an employee or independent contractor for tax purposes. The IRS looks at many factors in making a determination. If you hire an independent contractor and the IRS later reclassifies the person as an employee, you can be hit with a tax bill for unpaid taxes, interest, and penalties. You also might be liable for state taxes, unemployment taxes, and employee benefits – such as retirement plan contributions.
4. Services Performed Through a Professional Employer Organization. Hiring employees through a PEO for long periods of time may not eliminate your obligation to make retirement plan contributions for these workers.
5. Improper Correction Method. Employers can correct certain compliance problems in retirement plans without requesting advance IRS approval. However, the proper correction method must be used pursuant to IRS guidelines.
6. Default Account. Retirement plans often specify a money market account or a GIC (guaranteed investment contract) as the plan’s default account. But plan fiduciaries must prudently invest nondirected participants’ accounts, even if the plan document provides for a “default” account.
Our Employee Benefits Plan Group can perform a compliance review of your retirement plan to help you avoid costly penalties and time-consuming government investigations. We can work with you to define the scope of the compliance review so it conforms to your budget.
For more information, please contact Jeff Spencer at email@example.com or 216-831-7171.