All qualified plans, i.e. 401(k), Profit Sharing, and Defined Benefit (DB) plans must comply with IRS and DOL rules in order to remain qualified (i.e., be able to keep favorable tax status).
Favorable tax status allows for Employer and employee deductions of current contributions, as well as tax deferral of earnings on accumulated contributions. If the IRS (Internal Revenue Service) threatens to revoke the favorable tax status of any qualified Plan the sponsor and all the employees could be taxed on all prior contributions and all accumulated plan benefits. The DOL (Department of Labor, specifically EBSA, Employee Benefits Security Administration) also has the ability to impose civil and/or criminal sanctions on plan sponsors who fail to comply.
Think about that – employees could be taxed on Employer contributions made on their behalf!
The 10 most common Plan errors are:
-Failure to implement employee 401(k) deferral elections/changes;
-Failure to remit 401(k) deferrals timely;
-Allowing employees into the plan either too early or too late;
-Failure to implement Required Minimum Distributions under either profit sharing or DB plans timely;
-Failure to file Form 5500 timely;
-Prohibited transactions between plans and their sponsors;
-Incorrect vesting calculations;
-Failure to implement all the Safe Harbor rules for 401(k) plans;
-Loan Failures;
-Document failures (current due date for Defined Contribution Plan Restatements is July of 2022).
Each failure may possibly be corrected under a different IRS/DOL Voluntary Correction program to avoid Plan Disqualification, depending on how long the error has occurred, who is affected, and other facts and circumstances.
Our team of experts can help you with the following:
Reviewing plan documents and operations to determine if there are violations
Suggesting appropriate correct methods/programs
Determining which program is appropriate, and completing the filing for you to avoid penalties and/or plan disqualification