When is the last time your clients made sure their retirement plans are up to date and operating in compliance with federal law and regulations, as well as their actual plan document?

 

Such due diligence is important for a variety of reasons. First, the rules governing tax-qualified retirement plans are complex and ever-changing, and an employer’s fiduciary liability under such plans is substantial. Second, comprehensive due diligence can reduce risks and administrative burdens for the company, and can help ensure that the company is meeting its responsibilities to plan participants.  Finally, the IRS and DOL have promised — and are delivering — increased scrutiny of employer-sponsored retirement plans. The IRS and DOL are particularly interested in whether the employer is meeting operational and non-discrimination testing requirements that are intended to protect the rights of plan participants.  Does the employer offer the plan to all eligible employees and provide proper notices? Make deposits on time? Meet testing and filing requirements? Properly calculate underlying compensation to determine retirement contributions or benefits?

 

Given that laws and regulations governing qualified retirement plans change frequently, savvy employers review their retirement plan documents annually to ensure they are up to date with current requirements.  But due diligence shouldn't stop there. Your clients should adopt practices, procedures and other internal controls to ensure the plan operates in accordance with the provisions of the plan document as well as all IRS and DOL regulatory requirements.

 

An important time to conduct due diligence is after certain "triggering events" such as a change in third-party administrator or investment provider, the departure of key internal benefits personnel, or a major business change including a spin-off, acquisition or merger. Should the employer find an error in the plan document or in the plan's operation, don't despair. The IRS and DOL provide incentives for finding and fixing mistakes sooner rather than later. Business owners can often self-correct plan errors without incurring regulatory scrutiny or penalties.

 

If the plan’s TPA has not already suggested a complete plan review, this could be a great way to add value to your existing relationship by suggesting a provider who can help determine whether your clients are meeting all of their obligations as plan sponsor.

 

Please contact RSM McGladrey to learn more about the most important retirement plan requirements or to help your clients test the operational and legal health of their retirement plan.