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Internal controls at the employer level are critical to protecting the plan’s tax-favored status. For retirement plans, employers should focus on reviewing the plan’s operations and updating the plan document.

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Updating Your Retirement Benefit Plan Keeps You In Compliance

  • 7/28/2014

Internal controls are processes designed to prevent fraud or mistakes, provide reliable financial reporting, and ensure compliance with laws, regulations, and policies. While many times the administration and recordkeeping of a benefit plan is outsourced to a third party administrator, internal controls at the employer level are critical to protecting the plan’s tax-favored status. For retirement plans, two areas of internal controls demand attention: reviewing the plan’s operations and updating the plan document.

Review the operations of your plan

A periodic review of plan operations is essential to ensure your organization is following the terms of the plan agreement. A self-audit is a good way to evaluate the design of the internal controls and provide a reasonable level of assurance that they are implemented properly and operating in accordance with the plan agreement.

The audit should focus on the key areas: contributions, distributions, and eligibility. Reviewing these key areas helps avoid common mistakes such as failing to review distribution forms to make sure they follow the plan terms, or not counting all eligible employees in testing.

The following are good examples of internal control procedures:

  • Compare salary deferral election forms with the amounts deducted from employees’ wages
  • Verify the types of compensation used for allocations, deferrals, and testing
  • Check that plan service providers received accurate compensation and ownership records
  • Monitor annual contribution and compensation limits
  • Verify the validity of rollover contributions to the plan
  • Verify that years of service were accurately determined for eligibility and vesting
  • Verify marital status and spousal consent for plan distributions
  • Ensure participants received required minimum distributions

The IRS provides information related to internal controls and self-audits that can also help you protect your retirement plan.

Update your plan document

From time to time, changes to laws or plan operations will require you to update your plan document to remain in compliance. In many cases, a retirement plan may use a document that has been pre-approved through the IRS plan document program. These pre-approved documents are typically provided to the plan sponsor by plan service providers.

Beginning on May 1, 2014, and continuing for two years, pre-approved defined contribution plans, which include 401(k), profit sharing, and money purchase plans, must be amended and restated. All plans of this type must be restated and signed by April 30, 2016, to remain in compliance with the law. Even if plan amendments have been issued to participants in the past, they must now be incorporated and made a permanent part of the core document. Failure to do so may cause a plan to lose its “qualified” status with the IRS, along with the tax benefits that it offers employers and employees.

In addition to the updates required by law, changes in your business or in plan operations may make it necessary to update your plan document. The needs and demographics of your employees are constantly changing, so updating the provisions of your plan will help you keep up with those changes. Ultimately, you as the employer, have the responsibility to ensure the plan stays in compliance. Check in with your provider and schedule some time to discuss this vital document.

How we can help

CliftonLarsonAllen offers a complimentary tool to help you comply with the restatement law and examine the effectiveness of your plan. Our Plan Check-Up looks at the current plan design to see if it is accomplishing your goals. CLA can also review the internal controls related to your plan’s operations. Talk to your CLA advisor about whether these resources can help improve your retirement benefit plan.