Most common failures


Most common failures

The IRS has identified 11 common retirement plan “failures” through audits, voluntary compliance submissions (such as VCP or VFC), determination letter applications and annual Form 5500 filings. These avoidable “failures” can be extremely costly to the plan sponsor if caught by the IRS before a correction is made.

The most common errors are failures to:
1. Amend the plan document for tax law changes by the end of the period required by law
2. Follow the plan document’s definition of compensation for determining contributions.
3. Follow the plan document’s eligibility provisions.
4. Satisfy Code Section 401(a)(9) required minimum distributions.
5. Follow the in-service distribution provisions of the plan document.
6. Provide correct distribution forms, make timely distributions and prepare correct tax reporting of distributions.
7. Follow the plan’s vesting schedule.
8. Retain records.
9. Maintain internal controls (i.e. prevent errors related to plan administration).
10. Follow the terms of a qualified domestic relations order (QDRO) related to divorce.
11. Satisfy the limits of Code Section 415 (i.e. ensure a plan participant does not exceed his or her annual contribution limit.

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