{"id":13327,"date":"2013-08-16T13:18:42","date_gmt":"2013-08-16T17:18:42","guid":{"rendered":"https:\/\/www.glensfalls.com\/glensfallsbusinessjournal\/2013\/08\/business-report-boucher8-13.html"},"modified":"2017-11-08T11:09:10","modified_gmt":"2017-11-08T16:09:10","slug":"business-report-boucher8-13","status":"publish","type":"post","link":"https:\/\/www.glensfalls.com\/glensfallsbusinessjournal\/2013\/08\/business-report-boucher8-13\/","title":{"rendered":"Business Report: Retirement Plan IRS Audits"},"content":{"rendered":"
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Lisa Boucher, benefits supervisor with CMJ, LLP in Glens Falls.\n<\/div>\n<\/div>\n

By Lisa Boucher, SPHR, CEBS<\/p>\n

Retirement plan audits are not something anyone wants to experience but it can happen.<\/p>\n

We recently assisted a client with a 401(k) Plan audit by the Internal Revenue Service (IRS). Here are a few items the IRS auditor focused on that you should be aware of:
\nAll plan documents must be kept indefinitely. This includes original adoption agreements, summary plan descriptions, plan amendments, restated documents, etc.<\/p>\n

\nThe purpose is to be able to provide documentation that shows the plan is and has been a qualified plan since inception.\n<\/div>\n

All plan documents, amendments, etc., must be signed by the trustee to be accepted by the IRS during an audit. An un-signed document is not proof the plan adopted the item. All other documentation, (e.g. copies of the Form 5500, payroll records used to determine eligibility, evidence of a fidelity bond, testing results) should be kept for at least six years.<\/p>\n

If you have a SIMPLE (Savings Incentive Match Plan for Employees Individual Retirement Account) or 401(k) Plan, all eligible participants who choose not to defer should sign a declination notice. This should be kept with your records.<\/p>\n

This can be as simple as a deferral form with 0 percent indicated and a signature. (The auditor did accept an e-mail indicating the declination from one participant but we recommend you get the signed 0 percent deferral form.) You may also want to think about updated forms each year for proof of the participant’s desired deduction.<\/p>\n

For timeliness of deposits for 401(k) Plans and SIMPLE Plans, be sure you are following the Safe Harbor seven day rule with deposits of deferrals and loan payments. This rule provides that as long as the funds withheld from an employee’s paycheck are deposited within seven days you meet the deposit deadline. The money does not have to be allocated or invested by that date.<\/p>\n

All of these requirements are set by ERISA (Employee Retirement Income Security Act of 1974) and the responsibility of keeping these records lies with the plan administrator. In other words, even if you have a third-party administering your plan, the employer (that’s you) is ultimately responsible for retaining the required records.<\/p>\n

Records can be kept electronically, as long as your system has good controls to ensure the accuracy of the records. An electronic recordkeeping system should also contain: \u00e2\u20ac\u00a2 Controls that keep information safe and maintains accuracy.<\/p>\n

\u00e2\u20ac\u00a2 Files that are easy to access, retrieve, index, and reproduce.<\/p>\n

\u00e2\u20ac\u00a2 Files that can be easily converted into legible paper copies.<\/p>\n

Once you have set up your electronic records you may destroy the originals. However, the original documents must be kept if they have legal significance or if there is a value to the original form. Examples of documents to be kept would be: stock certificates and notarized paperwork.<\/p>\n

The most common plan mistakes that the IRS has cited are compensation errors, excess deferrals, failure to implement employee deferral elections, failure to adopt interim amendments in a timely manner, failure to limit contributions for a participant, and failure to timely start minimum distributions.<\/p>\n

Some of these errors can be fixed through EPCRS (Employee Plans Compliance Resolution System) and have minimal consequence on the plan. For instance, our client missed some participants who should have been included in the discrimination testing. The consequence was an excess deferral distribution of $1,039 with a penalty of $140. However, something like failure to amend the plan in a timely manner to comply with changes in the law can disqualify the plan and result in severe tax consequences.<\/p>\n

Once a plan is disqualified the employees, employer, and the plan’s trust are subject to taxation, which can be very expensive. This means that all of the contributions to the plan become taxable, the plan Trust must file a tax return and pay taxes on any earnings in the plan. Any distributions from the plan that were eligible rollovers now become taxable events and the disqualification is retroactive to the first date of plan error. This can be expensive and impact employees negatively.<\/p>\n

The IRS offers checklists on their website that can help you keep track of your plan. They also offer tips for how to prepare for an audit. Using the IRS tools and conducting a self-audit periodically will help you stay in compliance should the IRS audit your plan.<\/p>\n

Another way to stay in compliance is to hire a trusted professional with retirement plan certifications and experience in managing plans as a third-party administrator. Working with a retirement professional can help to ensure that your company remains in compliance, which can alleviate the worry of a potential retirement plan audit.<\/p>\n

Boucher is a benefits supervisor with CMJ, LLP in Glens Falls.<\/p>\n","protected":false},"excerpt":{"rendered":"

Lisa Boucher, benefits supervisor with CMJ, LLP in Glens Falls. By Lisa Boucher, SPHR, CEBS Retirement plan audits are not something anyone wants to experience but it can happen. 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