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Where problems typically crop up, according to Monika Temple man, IRS
Director of Employee Plan Examinations, is when "there's a communication gap between you and the plan administrator about what the plan document provides and what documentation is needed to ensure compliance."
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A failure to amend your plan's basic documents on a timely basis to reflect new laws.
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Failure to review in-service, termination and loan distribution forms to ensure consistency with plan documents.
This issue crops up, according to the IRS, when plan service providers simply furnish standard distribution forms to all of their clients "despite the fact that individual plans may have different distribution options and requirements."
Employers often fail to recognize that certain employees may still need to be counted, and therefore don't provide their names to the administrator that performs the tests. Examples of overlooked employees include those who were terminated over the course of the year, and "employees of a related company with common ownership interests."
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The IRS also offers a 401K plan checklist highlighting more potential
compliance lapses, and how to make amends. The rundown also offers pointers on how to prevent the common compliance lapses from recurring.
For example, plans that fail the ADP and ACP discrimination tests might
consider adopting a safe harbor design formula, the IRS suggests. But safe harbor designs may be too restrictive for some employers. At a minimum, the IRS suggests strengthening lines of communication with your plan administrator.
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Given the volume and complexity of all the federal rules governing
retirement plans and the frequency of changes to those rules, it would not be surprising to find an area in which your plan is out of compliance, or where an error exists.
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The benefit of that program, says the IRS, is that it allows you to fix minor
operational errors and preserve your plan's tax-favored status and avoid penalties.
More serious operational errors that you find before the IRS does, such as
a failure to bring your plan document up to date, might be remedied with a voluntary correction submission to the IRS. (Some of those procedures were recently updated under a new "Revenue Procedure," specifically Rev Proc.2013-12.)
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E-mail : info@hrp.net
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