Judy Ward, PlanSponsor
Do not wait for an audit from the Internal Revenue Service (IRS) to solve your plan’s operational problems. Sponsors should regularly conduct self-reviews of their plan’s operations to fix – and, even better, prevent – problems, sources say.
The Plan Document is Behind the Times
Error: Many sponsors get their amendments from the plan vendor, put they may not always remember they have to then take action to formally adopt the change, says attorney Carol Buckmann, counsel, pensions and benefits at law firm Osler, Hoskin & Harcourt LLP in New York City. “Often the vendor will send amendments out to sponsors and they don’t respond on time,” she says. “Many small-plan sponsors in particular do not always realize that these are the firm requirements, and the IRS is not flexible about meeting the deadlines.”
How to Resolve: If a plan failed to adopt an amendment in a timely way, the sponsor has to go through the VCP, adopt the amendment and pay a compliance fee. To avoid this problem, most sponsors work with an outside agency or attorney who keeps track of when the plan needs to do an amendment, Buckmann says. “One of the biggest problems is small employers that don’t want to spend the money for outside advice from an expert who is ‘watching the store’ while they’re busy,” she says. “Sometimes plan sponsors are penny-wise and pound-foolish about that.”
The Plan’s Form 5500 Went MIA
Error: “In a larger plan that must be audited every year, the audit may not be finished, yet it has to be attached to the 5500 filing,” Buckmann says. “technically, it is not a complete filing if it doesn’t have an audit attached.”
How to Resolve: Putting the 5500 on a sponsor’s annual compliance checklist helps ensure it gets done. “Many providers will send sponsors a draft 5500,” Buckmann says. “Some sponsors don’t realize that they’re responsible for making sure all of the questions are answered correctly, and sometimes there are places on the draft 5500 where the sponsor is supposed to fill in information. Make sure you get a draft 5500 early enough to review it and get any needed corrections made.”
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