The lead article in the current issue of PLANSPONSOR magazine on “Risk Protection” features advice on why and how to implement plan compliance reviews. Carol Buckmann is quoted in the article on a number of issues, including how to start a review.
She says: “When starting the process, it is a good idea for plan sponsors to get familiar with the IRS’ “401(k) Plan Fix-It Guide,” which lists 12 of the most common operational errors for plans, as well as how to find the mistake, correct it and avoid making it again in the future. ‘The typical way a review starts is to make a list of things to check.’
Carol also discusses an IRS pilot program many hope will become permanent. This program gives plan sponsors an opportunity to fix operational problems they discover on favorable terms. She advises:
“This past June, the IRS started a pilot pre-audit compliance program, which gives sponsors that receive notification of an IRS plan audit 90 days to find and, using the Employee Plans Compliance Resolution System, Revenue Procedure 2021-30, fix any errors eligible for self-correction. Sponsors that do this face reduced fines, or no fine, for operational mistakes. …By reporting errors ineligible for self-correction, sponsors still face a lesser fine than they would otherwise.
“Sometimes it’s hard to convince plan sponsors that they ought to do these operational self-audits, because of the time it takes,” …but this pilot program, which may or may not become permanent, is a big incentive to do that. You have the opportunity to get lower penalties if you can show you’re on the ball and have fixed a problem.”
Carol also pointed out that problems may be inversely proportional to plan size, so these reviews are particularly important for smaller plans.
To read the full article, go to https://www.plansponsor.com/magazine/risk-protection/.