Why would an employer self-impose an employee benefit plan audit? Because it’s 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.
Employee Benefit Plan Audit: Common Faults Discovered by the IRS and DOL
There are six common operational faults found by the Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL) that you’ll want to avoid:
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, then 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. Retirement Plan 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 non-directed participants’ accounts, even if the plan document provides for a “default” account.
Our C&P Employee Benefits Plan Audit Group can perform a compliance review of your retirement plan to help you avoid costly penalties and time-consuming government investigations. We can also work with you to define the scope of the compliance review so it conforms to your budget. You can contact Jeff Spencer, CPA, MAcc at jspencer@cp-advisors.com, 216-831-7171, or submit an inquiry on the contact us page of our website for more information.
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