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Complying with Your Plan Document, Part 1 ||
March 29, 2011
Every year your employee benefit plan must be in compliance with a myriad of regulations from the DOL and IRS. As a result, it is critical that you review annually the operating requirements for your 401(k) plan. Reflecting on these questions from the IRS and acting as necessary can help reduce the time it takes to complete the audit and may even save you in compliance fees.
1. When was your plan document last updated?
The laws governing retirement plans change frequently, and there are statutory deadlines for which many provisions must become effective. Reviewing your plan document annually will help you determin if any amendments are necessary.
Here is a list of documents that you should keep to prove your fiduciary duty has been met as you amend your plan document:
- Original plan document
- All subsequent amendments or restatements to the plan document
- All adoption agreements
- Any opinion letter or advisory letter from the IRS
- Any determination letter from the IRS
- Board of Director's resolutions and minutes, or similar records that are plan related
2. Is your plan document the basis of the plan's operations?
It follows that the plan's operations are based on the plan document terms. Still, it is easy over time to stray from the terms of the plan document. One of the most common errors in plan operations, as documented by the DOL, is the adherence to the terms in the plan document.
Be sure you apply the plan's provisions correctly when making a determination of what contributions or benefits you provide to participants. You will need to communicate with all relevant parties, including those who service your plan so it remains in compliance.
3. Is the plan's definition of compensation for all deferrals and allocations used correctly?
Your plan may use different defitions for compensation for different objectives, so it's critical that you use the appropriate definition when dealing with deferrals and allocations. Your definition must fulfill proper rules for determining the amount of contributions. For 2010 the amount of compensation taken into account under tha plan cannot exceed $245,000 and is subject to cost-of-living adjustments for later years.
A common error relates to how bonuses are treated and if it is in line with the governing terms of the plan document.
4. Were employer mating contributions made to all appropriate employees under the plan terms?
Employers may mistakenly break the terms of the plan by failing to contribute the matching contribution as supported by the plan document. Commonly, this mistake comes from a failure to properly count hours of service or identify plan entry dates for employees. How you can find the mistake:
- Identify the correct matching contribution formula in the plan document and compare it to what has been used.
- Review the definition of compensation used to calculate matching contributions.
- Evaluate the timing of the matching contribution. If the plan document states the match is a percentage of deferrals made on an annual basis and you make matches on a weekly basis, you may have a mistake.
- Be aware of any changes to the plan document.
You can read more about these questions from the IRS, how to find the mistakes and how to fix them, at http://www.irs.gov/pub/irs-tege/401k_mistakes.pdf.
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