Ten Reasons to Identify and Correct Mistakes in Your Retirement Plan Operations |
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At the IRS we hear some pretty interesting reasons for not reviewing retirement plan operations on a regular basis and not bringing those plans into compliance with the law.
- We don't have any problems with our retirement plan. (We haven't looked too closely, but we hope it's okay.)
- A close look at our plan would be expensive.
- If we find a problem with our plan it will be too expensive to fix. And how do we know what to do to fix it?
- We don't have the (insert one or more) (a) time, (b) staff, (c) money to deal with retirement plan issues on a regular basis.
- I don't want to have any contact with the IRS that I can avoid.
- If there's a problem with the plan I don't want upper management to know about it.
- I paid the accountants to do the annual financial audit so we're okay.
Here are some good reasons to identify and fix mistakes in the operation of your retirement plans.
- What you don't know CAN hurt you. Hoping that your retirement plan is operating according to its terms and within the law isn't enough. A program of regular review and analysis of the plan document and its operation is essential to keeping the plan healthy. Problems in plan administration are easier - and cheaper - to fix when they're small and haven't continued over a long period of time. Without regular oversight and review retirement plans can quickly stumble into trouble - sometimes big trouble.
- As Bob Dylan said in another context, “The times they are a-changin.” And so is the law related to retirement plans. Frequently. Ten major changes in pension law in the past 25 years and numerous smaller changes mean that what worked last year may no longer work now. Or law changes might mean you can simplify some areas of plan administration or improve benefits. Changes to pension law in the future are a good bet. Plan language and operation will need to be changed to keep the plan within the law and to take advantage of increased benefit limits.
- An objective - and fresh - set of eyes may see problems the plan's day-to-day administrators don't. An independent review of the plan and its operation may turn up not only problems that hide in everyday operation of the plan but opportunities for changes that will improve benefits for participants. Or even save money on plan administration.
- Ignorance may be bliss but it's not cheaper. At least not with retirement plans. Mistakes in retirement plan operations seldom go away on their own. They often continue year after year unless they're found and corrected. Finding a mistake in the first year it's made will be easier and less expensive to fix than the same mistake repeated over five, ten, or fifteen years. And the correction programs sponsored by the IRS are structured to provide financial incentives for finding and correcting mistakes earlier, rather than later.
- Plan participants expect their retirement plan to deliver what's promised. Mistakes in plan operation can take away from the significant employee morale boost provided by sponsorship of a retirement plan. Liability for failure to follow the terms of the plan and stay within the law is a real risk for plan sponsors. Ongoing independent review of plan operations and correcting mistakes reduces that risk.
- IRS retirement plan correction programs are here to help. We've heard the joke about “I'm from the government and I'm here to help,” too. But this time it's true! Our correction programs help you operate your plan within the law and protect participant benefits. These programs provide real incentives to identify and correct mistakes sooner rather than later.
- The IRS encourages appropriate use of its do-it-yourself correction program. Many problems found within two years can be corrected without telling the IRS about it. And your plan's tax benefits are protected. If you're not eligible for this self-correction program read on. There's help for you in #8.
- The IRS offers help for other plan operation problems. If you aren't eligible to self-correct without contacting the IRS, you can ask the IRS for help. You'll pay a small fee depending on the size of the plan, correct the mistake and receive a letter from the IRS telling you that the plan's tax benefits are intact. If you're still a little bit hesitant about working with us, use the “John Doe” program that allows you to tell us about the problem and find out what correction will be required before you tell us who you are. Asking the IRS for help in correcting a retirement plan problem won't cause an audit, either. So what are you afraid of?
- IRS audit of your retirement plan? Even if a mistake isn't found until an IRS audit of your plan, in most cases we'll help you protect the tax benefits of the plan and its participants. Of course, if the mistake isn't found until an examination it will cost more than if you'd found and corrected the error earlier.
- It's the right thing to do. Ensuring that the retirement plan you and your employees count on is in good running order keeps the promise you made in setting up the plan. You care about the future of your company and its employees and are committed to them.
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Page Last Reviewed or Updated: September 29, 2008