The passing of the October 17th Form 5500 filing deadline may be a relief for auditors, but chances are your plan has been left with some operational deficiencies that need to be corrected. With over 200 annual plan audits, we identify operational deficiencies on a majority of our audit engagements.
Although most are not significant, the most common are untimely remittance of participant deferrals and loan repayments, improper applications of eligible plan compensation, employer matching calculations, and delays in enrollment of participants, including automatic enrollment and escalation.
The default answer provided by auditors when it comes to correcting these deficiencies is typically, “Check with your ERISA counsel.” While most auditors do not practice ERISA law, they should be familiar with correction options that are available under the Department of Labor (DOL) and Internal Revenue Service (IRS).
Department of Labor
The Employee Benefits Security Administration (EBSA) protects the assets of employee benefit plans under Title I of ERISA. EBSA has two voluntary self-correction programs available for plan administrators who need help in meeting ERISA requirements:
- The Delinquent Filer Voluntary Compliance Program (DFVCP) pertains to late or missed Form 5500 filers and provides a chance to bring them up to date with corrected filings with a penalty.
- The Voluntary Fiduciary Correction Program (VFCP) includes 19 specific transactions, including corrections of delinquent participant remittances, and provides plan sponsors the opportunity to correct these prohibited transactions.
Internal Revenue Service
The IRS correction programs, under the Employee Plans Compliance Resolution System (EPCRS), help plan sponsors of qualified retirement plans keep their plans in compliance with Internal Revenue Code requirements. The EPCRS encourages plan sponsors to correct plan errors earlier rather than later. The IRS has a comprehensive Fix-It-Guide that provides specific examples of mistakes, as well as how to fix and avoid them. There are three opportunities for correction under the EPCRS:
- The Self-Correction Program allows plan sponsors to correct many errors without notifying the IRS or paying any fees. Plan sponsors may correct insignificant operational errors at any time. Significant operational errors must be corrected before the end of the second plan year after the failure occurred.
- The Voluntary Correction Program (VCP) allows plan sponsors to preserve the plan’s tax-favored status. This program must be utilized by a plan that is not currently being audited by the IRS. Through the VCP plan sponsors are able to obtain a written agreement, called a compliance statement, showing that the IRS approved their proposed correction method.
- The Audit Closing Agreement Program can be used by plan sponsors that have significant issues that are discovered as a result of an IRS audit of the plan. The plan sponsor makes the appropriate corrections and then pays a sanction negotiated with the IRS.
Operational deficiencies can be discovered through internal review or external audit. Plan management should consult with their plan auditor and ERISA counsel to properly determine the overall impact of the deficiency and to assess the best available correction method.
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