Penalties were levied even when the errors were inadvertent. A plan sponsor can be deemed to have mishandled plans even when errors are administrative in nature and no willful misconduct occurred.
Employee benefit plans with 100 or more eligible participants are subject by federal law to annual audits that are designed to reduce the risk of errors and protect the interests of the plan sponsor and participants. But what about small company plans with fewer than 100 eligible participants? Some employers engage a qualified auditor to test their plan for deficiencies so they can be corrected before the DOL, or an aggrieved employee, comes knocking. These voluntary “plan checkups” are a great way to reduce risk and offer some peace of mind.
The impact of not complying with applicable rules is significant to the plan, the employer and the employee. If the plan is no longer deemed a “qualified” plan, it will result in changes to its financial statements and tax returns. The employer could lose the tax deduction for all contributions made to the plan and be subject to penalties. The employee could be subject to tax on all vested contributions.
And, anyone who serves as a plan fiduciary can have personal liability – you could be named in a lawsuit if you serve as a fiduciary and there are allegations that you failed your duty to serve the interest of the plan participants. Most fiduciaries want to do the right thing, but mistakes can have serious consequences.
Retirement plans of any kind are a great recruiting and retention tool, but keeping up with the complex rules for plan administration can be difficult for organization owners, managers or board members who don’t perform that work on a regular basis. A plan checkup performed by experienced auditors can help ensure your organization complies with all state and federal laws and regulations governing the plan.
Auditors can identify some compliance issues commonly encountered by plan sponsors. Examples of mistakes we commonly see include:
A plan checkup usually takes the form of an agreed-upon procedure engagement, which means the auditor is engaged to perform specific procedures for a specific period of time and report the findings to the entity that commissions it. During our plan checkup engagements, we perform selected procedures that test for the most common compliance issues identified in our audits. If your company agrees to a plan checkup, your auditor will issue a report to the owners or board for consideration. This gives your organization a chance to correct problems quickly.
The DOL says plan sponsors have a monitoring responsibility – maybe you didn’t know of an error, but you should have known. So, burying your head or claiming ignorance is not going to protect you. The best thing you can do is take an active, even proactive, interest in the administration of your organization’s benefit plan.
If you’d like to learn more about how plan checkups work, watch the video or contact Heidi Chick, CPA, at (573) 442-6171. Williams-Keepers LLC has a strong team of employee benefit team auditors who can put their years of experience to work for your organization.