The Form 5500 provides much more than simple data about a plan’s assets and number of participants — it also shows what a plan is not doing. Or doing erroneously. The IRS examined 50 Forms 5500 filed by DC plans with less than $250,000 in assets and identified issues that the forms brought to light.
Not amending the plan to comply with current law in a timely way — a failure that could affect the plan’s qualified status — is one of the most common issues the IRS identified. The other is failure to meet ERISA Section 412’s requirement that a plan have a fidelity bond in the amount of 10% of the trust.
Almost a third of the 401(k) plans whose forms were examined showed a failure to properly run discrimination tests and to timely deposit elective deferrals into the trust. Other errors included:
• not timely filing Forms 1099-R for plan distributions
• not allocating contributions and forfeitures according to the plan terms
• top-heavy failures, including top-heavy minimum contribution failures
• not securing joint and survivor annuity waivers
• distributions not allowed by the plan terms
• not fully vesting participants upon a complete discontinuance of contributions
• not including defaulted loans in income
The IRS suggests that plan sponsors consult with administrators and pension professionals to make sure their plans are up to date with changes to the law. Other recommended steps to avoid errors include:
• set up operating procedures and internal controls;
• conduct an annual review of fidelity bonding compared to the value of the trust assets; and
• conduct a self-audit.
John Iekel is a writer/editor for ASPPA and its sister organizations, including NAPA Net.
