Correction of Retirement Plan Errors
Aldrich Retirement Solutions
To this dismay of plan sponsors, the daily operation of a qualified plan is not always in sync with the written plan provisions or completed in accordance with the Department of Labor or Internal Revenue Service regulations. Discovery of plan document or operational errors by the IRS or the DOL during an audit can result in penalties, fees and potential disqualification of the plan.
The IRS and the DOL each have two programs that permit plan sponsors to voluntarily come forward before an audit in order to correct certain errors under their guidance.
IRS: Employee Plans Compliance Resolution System
This program is established by a Revenue Procedure, which is updated periodically by the Internal Revenue Service. The Revenue Procedure establishes the timing, user fees payable to the IRS and a guideline of approved correction methods for operational and document errors. The following are examples of some of the errors correctable under this program:
- Failure to timely adopt a required amendment or restated plan document.
- Failure to operate the plan in accordance with the adopted plan document.
- Failure to use the correct definition of compensation for plan purposes.
- Failure to make contributions required under the terms of the plan.
- Failure to allow eligible employees to participate in the plan.
For errors that do not align with the established guidelines and examples set forth in the IRS Revenue Procedure, the program permits sponsors to submit a request for review and approval of a proposed correction. These types of submissions can be done anonymously when circumstances would call for not providing full disclosure of the sponsor’s information unless the IRS agrees to the proposed correction.
IRS: Penalty Relief Program for Form 5500-EZ Late Filers
This program is established by a Revenue Procedure, which provides for the filing of delinquent Form 5500-EZ filings. The program allows for a reduced user fee and corrective filing to avoid what can be severe late filing penalties.
DOL: Voluntary Fiduciary Correction Program
This program was established to assist plan sponsors correct the following errors:
- Delinquent remittance of participant 401(k) contributions and participant loan repayments.
- Loans failing to comply with plan provisions as to the amount, duration or amortization.
- Loan interest rate errors (e.g. below-market interest rate to a party in interest).
- Purchase of an asset by a plan from a party in interest.
DOL: Delinquent Filer Voluntary Compliance Program for Late Form 5500 Filers
This program was established to assist plan sponsors file overdue annual reports (Form 5500). This program permits plan sponsors to pay reduced penalties if the delinquent 5500 filings are made prior to being notified by the DOL of the failure to timely file the annual report due. The Delinquent Filer Voluntary Compliance Program fee is reasonable, especially when compared with late filing penalties that can be assessed by the IRS and the DOL.
We Are Here to Help
If you are interested in learning more about our correction of plan errors services, the Aldrich Retirement Solutions team is ready to help you.
learn more about our plan error correction services
Aldrich Retirement Solutions LP
Theresa Winkler has more than 30 years of experience in ERISA and retirement plan law. Her expertise includes document drafting, research, and compliance review for 401(k), as well as profit sharing, money purchase, and defined benefit plans including cash balance pension plans. Prior to joining Aldrich in 2016, Theresa served as an ERISA/Employee Benefits Paralegal…
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