Templeman discusses audit results of potentially frozen money purchase plans

In the latest issue of Retirement News for Employers, Monika Templeman, Director of Employee Plans (EP), provides results of IRS audits of potentially frozen money purchase plans. The results come from the most recent Learn, Educate, Self-Correct, Enforce (LESE) audit. Such audits are small, quick projects involving Form 5500 returns with pre-identified issues. “Our project goal,” said Templeman, “was to determine if problems occurred in money purchase plans with a Form 5500 showing no employer contributions for the plan year.”

Most plans were compliant
According to Templeman, most of the plans audited complied with frozen money purchase pension plan rules. “For some plans,” she said, “we obtained delinquent Form 5330s, collected excise taxes and verified that plans with a funding deficiency made additional employer contributions.”

Identified problems
In about 13% of the plans, the plan sponsor didn’t timely amend the plan to comply with current law, Templeman said. EP resolved this issue using Audit CAP, which generally requires the plan sponsor to adopt retroactive plan amendments and pay a negotiated sanction.

Other identified issues included:

• Not properly reflecting the trust’s assets, income and expenses on the Form 5500 return;

• Not making required minimum distributions (there is a 50% excise tax for not distributing required amounts);

• Not distributing terminated employees’ account balances; and

• Not having an adequate fidelity bond.

Avoiding the errors

Templeman provided the following tips for avoiding plan errors:

• Employers should talk with their plan administrator or benefits professional to determine if their plan is updated for current law changes. Not timely amending the plan can cause it to become nonqualified.

• Employers should set up operating procedures and appropriate internal controls for the plan. A benefits professional can help establish a system that works for the employer and its retirement plan. Having effective practices and procedures in place to prevent compliance problems is a basic requirement to be eligible to use the IRS Self-Correction Program to fix operational errors.

• The employer should know its plan’s terms.

• The employer should conduct a self-audit of its retirement plan.

If an employer discovers that the plan has not been operated according to its terms or current law, this error can be corrected through the Employee Plans Compliance Resolution System (EPCRS).

Source: IRS Retirement News for Employers, March 18, 2013.

Source: General Explanations of the Administration’s Fiscal Year 2014 Revenue Proposals, Department of the Treasury, April 2013. EBRI press release, April 10, 2013. ASPPA press release, April 5, 2013. ERIC press release, April 10, 2013. PSCA press release, April 10, 2013.

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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