Maintaining good internal controls key to improving plan compliance, says IRS official


Plan sponsors can improve compliance by maintaining good internal controls in operating their retirement plans, IRS Employee Plans Examination Director Monika Templeman said on August 14, 2012. Templeman, IRS EP Exam Area Manager Thomas Petit and two benefits practitioners spoke on a webcast sponsored by the Knowledge Congress about IRS audits of retirement plans.

The IRS looks for several indicia of internal controls, including the segregation of duties (payroll, human resources, etc.), providing systems to verify data and maintaining good books and records, Templeman said. It is also important that the plan file a timely and accurate Form 5500, Annual Return/Report of Employee Benefit Plan that is consistent with records maintained by the plan, she added.

Susan Mehlman, director of the compensation and benefits practice for Moss Adams LLP, discussed the importance of the employer properly managing its plans: maintaining plan records, developing an investment policy and monitoring investment performance, testing the plan for annual compliance, providing communications to participants and educating employees about the plan.

Importance of timely amendments

Along with Templeman, Jake Downing of Seyfarth Shaw LLP stressed the importance of plans making timely amendments to keep up with current requirements in statutes and regulations. Downing recommended that plans annually review their status to determine if any required or optional changes need to be made. He also recommended that plans conduct a comprehensive review for all required amendments before applying for an IRS determination letter.

Templeman said that failure to amend plans is one of the major errors that the IRS finds in examinations. She recommended that plans keep their original documents, subsequent amendments and board of directors’ resolutions approving plan amendments. When a plan is amended, she said it is important that the summary plan description be revised to match the plan. She noted that plans can correct nonamender problems through the EP’s voluntary compliance program.

401(k) plan errors

Petit discussed recurring examination errors involving 401(k) plans. Some of the primary problems involve the failure of employers to make matching contributions, nondiscrimination testing failures, and excess elective deferrals, such as improper catch-up contributions. For 403(b) plans, Petit said that the failure to maintain a written plan document has become a problem. The IRS is now reviewing 2009 and 2010 plans for compliance. He noted that the IRS provided some relief in Notice 2009-3 for good-faith efforts to comply with the requirements. Overall, he said the IRS is taking a “light approach” to actions involving written documents.

Source: Knowledge Congress webcast.

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For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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