What is a Plan Audit?

IRS-DOL-Audits

Every year the Department of Labor (DOL) and the Internal Revenue Service’s (IRS) Employee Plans Compliance Program (EP) perform thousands of audits of employee benefit retirement plans.  Even under the best conditions, these audits can be extremely stressful, as well as time-consuming for an employer.

Employers may wonder why their plan was selected for audit and what to expect.  The Ryding Company can help plan sponsors through the examination process, addressing various concerns, and offer the employer an overview of the IRS and DOL audit process. This overview will provide the employer with a significantly better understanding of EP compliance efforts. We will represent you before the IRS or DOL in the event of an audit.

IRS Employee Plans Office (EP)

IRS-DOL-Audits

The IRS Employee Plans Office (EP) is responsible for ensuring those plan sponsors, individuals, and benefits practitioners understand and comply with the tax law governing retirement plans and IRAs.  This office is part of the Tax Exempt and Government Entities Division of the IRS.  The Employee Plans Office was created in 1974, following enactment of the Employee Retirement Income Security Act, to help protect the retirement benefits of employees.  The goal of Employee Plans (EP) Examinations is to promote voluntary compliance by reviewing the operation of retirement plans for consistency with plan terms and pension law.

During an EP audit, the focus is on participation, vesting and funding issues, plan compliance with the Internal Revenue Service Code as well as processing requests for plan determination letters. The DOL audit focus is on violations of the Employee Retirement Income Security Act of 1974 (ERISA), as well as fiduciary standards, reporting, and disclosure requirements and other rules that don’t affect the status of the qualified plan.  Employers can have someone represent them during this examination. This person must be an attorney, accountant, enrolled retirement plan agent (ERPA), an enrolled actuary, or the person who prepared the Employer’s tax return and signed it as the preparer.  If an employer chooses to have someone represent them during this process, they must furnish the EP with written authorization (i.e. Form 2848, Power of Attorney and Declaration of Representative).

How can we help?

As an employer, there are various steps that you should be taking to make certain that your company is keeping their qualified retirement plans in conformity with IRS and DOL policies and regulations.  Both the IRS and the DOL have a checklist of issues they look for when they perform audits of a retirement plan.  These policies and regulations can be extremely confusing and we make it our responsibility to understand and assist our clients in complying with the laws that govern qualified retirement plans.

We have found that most employers need help creating and sustaining the internal controls.  We can help with this process and assist with the formulation and compliance of these guidelines to help you maintain your plan’s compliance. We can also clarify the diverse steps in the examination process and introduce available resources to assist you in this process.

The most common areas of review include:

  1. Eligibility, participation, and coverage— Are entitled employees accurately participating?
  2. Vesting—Have service and vesting been correctly credited?
  3. Discrimination—Do benefits, rights, compensation or features favor certain employees, but not others?
  4. Top heavy requirements—Have minimum contributions and benefits, and accelerated vesting, been provided?
  5. Compensation – Are you using the correct compensation to allocate contributions?
  6. Contribution and benefit limits—Are contributions and benefits within applicable limits?
  7. Funding and deductions—Are contributions sufficient and timely, and deductions within applicable limits?
  8. Distributions—Are distributions properly made and timely and accurately reported?
  9. Trust activities—Is the trust operated for the exclusive benefit of participants and in accordance with fiduciary standards?
  10. Plan and trust documents—Does the form of the plan and trust timely meet applicable tax law?
  11. Returns and reports—Were federal returns and reports timely and accurately filed?

Regular review of these issues and a direct focus on internal controls can help prevent costly fines and fees when the IRS and DOL audit an employer’s plan.  Let us help you learn how to appropriately satisfy plan terms and applicable pension law, and remain in compliance with EP guidelines.