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Keeping Your Clients Out of Trouble:
Top 10 Common Errors made by Plan
Sponsors
By:
Rosemarie Panico-Marino
Managing
Director
RSM McGladrey
(view profile)
Plan
Sponsors have the best intentions when it comes to
offering retirement plans for their employees.
Because there are so many options in the
marketplace, they may have a false sense of security
when hiring vendors to help administer their plans –
from recordkeeping to administration to investment
advice.
But
as fiduciaries, they need to be aware of common traps
that can jeopardize the qualified status of their plan.
The IRS
has identified the following as some of the most common
errors made in retirement plans:
-
Failure to remit employee
contributions as soon as administratively feasible
-
Failure to include an
eligible participant in the plan
-
Failure to execute on
deferral elections
-
Failure to provide required
notices to participants (e.g., safe harbor notices)
-
Failure to follow plan
document eligibility and vesting provisions
-
Failure to properly
administer loan provisions
-
Failure to make minimum
required distributions
-
Failure to make top heavy
contributions
-
Failure to correct ADP/ACP
testing failures
-
Failure to timely amend plan
for required amendments
As
fiduciaries, plan sponsors have the responsibility and
obligation to assure that the company’s plan document is
in conformance with current regulatory and legislative
requirements and that the operation of the plan is in
conformance with the plan document.
The IRS allows many plan document and plan
operations failures to be corrected under its Employee
Plans Compliance Resolution System (EPCRS).
Recently, the IRS Employee Plans Compliance Unit
launched its 401(k) Compliance Check Questionnaire
project and mailed instruction letters to 1,200 randomly
selected 401(k) plan sponsors that filed the Form 5500
for the 2007 plan year.
The purpose of the questionnaire is to gather
information to identify key compliance issues and
provide future guidance and enforcement of these issues.
It’s clear that after more than 20 years since
legislation was enacted adding 401(k) to the Internal
Revenue Code,
the IRS is concerned that plan fiduciaries
continue to struggle with meeting their obligations.
Plan
sponsors owe it to themselves to perform extensive due
diligence when hiring vendors to administer their plans.
As trusted advisors, you can help your clients
look beyond the bells and whistles and make it a
priority to hire vendors that have extensive experience
dealing with the regulatory and legislative requirements
for qualified plans.
Having the right “partner” could be the
difference between having a plan that operates correctly
or paying extensive penalties and fees for correcting
failures.
For more
information contact:
RSM
McGladrey
Toll
Free 1 - 888 - RET - 401K
(738 - 4015)
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