Ascensus Adds to Retirement Expertise with Agreement to Acquire Continental Benefits Group, Inc.               609.232.3200  /  info@cbginc.com  
Continental Benefits Group

Plan Audits and Corrections

The members of our ERISA Department specialize in diagnosing and correcting violations of the tax-qualification requirements and ERISA. It is true that violations of these requirements can result in the loss of the plan's tax-favored status and/or substantial penalties under the Internal Revenue Code and ERISA. However, these results can usually be avoided if corrective action is taken.



A review of IRS audit results shows the following 'top-10' list of violations discovered by the IRS:

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  -  Failure to amend the plan for changes in laws/regulations (aka, a non-amender)
  -  Failure to follow the plan's definition of compensation
  -  Failure to include eligible employees
  -  Participant loan failures
  -  Impermissible in-service distributions
  -  Failure to satisfy minimum distribution rules
  -  Failure to adopt the correct plan
  -  Failure to pass 401(k) and 401(m) non-discrimination testing (the ADP and ACP Tests)
  -  Failure to provide top-heavy minimum
  -  Failure to limit contributions to the maximum amount (section 416)

The IRS issues guidance permitting plan sponsors to correct violations of the requirements while retaining the plan's tax-favored status. Careful review of the violation is required to determine the appropriate correction. Some violations can be self-corrected (without IRS notice or sanction) while others require submission under the IRS' voluntary compliance program (EPCRS). Please contact us to discuss your specific situation.

Employee Plans Compliance Resolution System (EPCRS)
The IRS maintains the Employee Plans Compliance Resolution System (EPCRS). EPCRS is designed to enable plan sponsors to correct defects and errors that occur in the documentation and/or operation of tax-qualified plans (401(k), profit sharing, 403(b), pension plans, etc).

EPCRS includes the ability to self-correct certain violations as well as the ability to submit other violations for correction and IRS approval. EPCRS is the only way to correct a problem and ensure the plan retains its tax-qualified status.

Our ERISA attorneys and consultants represent plan sponsors in the correction process. The problems that are most frequently corrected include:
  -  Plan terms that do not satisfy the tax-qualification requirements;
  -  Failure to timely amend a plan document for tax law changes;
  -  Lost plan documents;
  -  Failure to timely correct an ADP/ACP test in a 401(k) plan;
  -  Violation of the top heavy rules;
  -  Improper distributions (typically without a distributable event);
  -  Overpayment of a participant;
  -  Plan loan failures;
  -  Failure to timely enroll participants in 401(k);
  -  Failure to follow participant's elections in a 401(k);

A complete list would go on and on. It is important to understand that nearly all problems can be corrected voluntarily in EPCRS.

EPCRS also permits corrections after an IRS audit. However, the penalty/sanction amounts will be higher. Therefore, it is important for plan sponsors to voluntarily correct known defects under EPCRS before an IRS audit.

We have literally handled hundreds of corrections. We typically provide these services for a flat fee that is established up front. Our attorneys and consultants are willing to discuss your issues with you and prescribe a method of correction. Please contact David Hanisco (609.232.3211 or dhanisco@cbginc.com) to do so.

Voluntary Fiduciary Compliance Program (VFCP)
In recent years, the Department of Labor (DOL) has been increasing it's audit efforts. By far, the most frequent issue raised in DOL audits is the timing of deposits of 401(k) contributions. Many employers have historically deposited 401(k) funds on a monthly basis. DOL regulations mandate deposits by the first date the contributions can be reasonably be separated from the plan sponsor's assets, but in no case later than the 15th business day of the following month. In recent audits, the DOL has insisted that a delay of longer than 7 days after the pay date is unreasonable. As a result, deposits any later than 7 days after the pay date constitute a violation that must be corrected. The DOL maintains the voluntary fiduciary compliance program (VFCP) a self correction program to resolve these and other fiduciary issues.

Delinquent Filer Voluntary Compliance Program (DFVC) - Late Forms 5500
One frequent violation related to retirement plans is missing, late or defective Forms 5500 filings. Failure to timely file a Form 5500 can result in penalties of up to $1,000 per day (in practice, the penalty imposed for small plans (less than 100 participants) is generally $100 per day up to $15,000 and the penalty for large plans is generally $1,000 per day up to $50,000. The DOL maintains the delinquent filer voluntary compliance program (DFVC). DFVC enables a plan sponsor to voluntarily file the returns and pay a reduced sanction ($750 for small plans and $2,000 for large plans). The ability to limit the amount of the sanction makes this program very popular. If you need help with DFVC, please contact any member of our ERISA Department.