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Qualified Retirement Plans 

Is your company’s 401(k) or other qualified plan ready for regulatory scrutiny?

401(k) and other qualified retirement plans are facing increased regulatory attention. What’s more, because both the IRS and the U.S. Department of Labor (DOL) regulate qualified plans, employers need to be aware of two different sets of regulatory concerns. Is your company’s plan ready? Following are some key issues you should focus on.

  1. Failure to amend plan documents and operations to keep up with ever-shifting regulatory changes. The assets accumulated in 401(k) and other qualified retirement plans represent a significant portion of the United States’ total wealth and as such, these plans draw considerable attention from Congress. The rules can change frequently. Failing to amend plan documents on a timely basis, or even when documents are amended, failing to make the operational adjustments necessary to put those changes into effect, are common reasons that qualified plans end up in trouble with regulators.
  2. Failure to make required minimum distributions. Regulations require minimum distributions for plan participants at certain ages and in other circumstances, but some plans do not have effective procedures in place to identify those participants, especially for plan participants who have left the company. 
  3. Failure to address missing plan participants or uncashed checks. Some companies do not have sufficient procedures in place to keep track of plan participants who have left the company. This lack of recordkeeping results in unsent or uncashed distribution checks. This failure to deliver the promised benefits is of great concern to both the IRS and the DOL.
  4. Failure to implement properly automatic enrollment features. Many 401(k) and 403(b) plans are now using automatic enrollment, where employees have to opt out of 401(k) participation instead of having to opt in. Congress has certainly encouraged employers to use automatic enrollment; and automatic enrollment can significantly increase average participation. However, many employers who added the feature to their plan have failed to establish the necessary internal controls to ensure timely enrollment of employees. The IRS has taken note of this fact and has revised its self-correction program to encourage employers to self-identify and self-correct these errors. If your plan has an automatic enrollment feature, you should review whether your company has proper controls in place.
  5. Effectively addressing qualified plan issues during due diligence in mergers and acquisitions. When you acquire another company, you also acquire its qualified plans. If their plan has any compliance issues, those issues become yours. Yet many companies do not include a rigorous examination of plan compliance in their due diligence procedures.
  6. Inadequate attention to fiduciary issues. The DOL focuses primarily on how well a plan is meeting its fiduciary responsibilities to plan participants. Are the investment fees your plan is paying appropriate? Are you achieving adequate investment returns and offering plan participants an appropriate array of investment options? In 2012, the DOL published new regulations concerning fee disclosure and has ramped up its investigative focus in this area. You need to review fees and investment options regularly and document and be prepared to defend your process.

How we can help

We understand the tax implications of retirement plan implementation and provide consultation on plan design, distributions, operations, prohibited transactions and plan termination. Our professionals help clients address compliance issues of 401(k) plans, defined benefit and pension plans, and tax-exempt and government employer plans.

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