Give Your Retirement Plan a Checkup

The tax advantages both during your working years and in retirement can be quite generous, but only if you set up and maintain your retirement plan in accordance with tax regulations. Have you plan documents been checked for updates necessary to remain compliant? Is the plan being operated as per the terms of the documents? Are all eligible, and only eligible, employees participating?

The wrong answers to those questions and others can cause your plan to fall out of compliance and result in tax consequences. Errors commonly found in the setup and operation of retirement plans can include:

  • Incorrect information given to employees.

  • Not following the terms of the plan documents.

  • Not covering eligible employees or covering ineligible employees.

  • Not making timely deposits to the plan.

  • Not adhering to maximum limits for employee deferrals and employer contributions.

The good news is that there are checklists provided by the IRS for annual checkups of retirement plans.i You will find overlapping checklist items for different plans, but also items specific to each type of plan. These are helpful checklists, but they should not be used in place of a complete plan review. For each of these lists, if you answer “NO” to any of the questions, you may have errors in the setup or operation of your retirement plan.

SIMPLE IRA PLAN CHECKLIST

  • Has your SIMPLE IRA plan been amended for current law?

  • Do you have 100 or fewer employees who earned at least $5,000 in compensation for the prior year?

  • Does your business only sponsor this SIMPLE IRA plan?

  • Are all eligible employees allowed to participate in the plan?

  • Are you determining each eligible employee’s compensation as defined in the plan document?

  • Are the correct employer contributions being made?

  • Are employee elective deferrals being deposited timely?

  • Are contributions being made to terminated participants who were eligible during the plan year?

  • Have you satisfied all SIMPLE IRA plan notification requirements?

SEP CHECKLIST

  • Has your SEP been amended for current law?

  • Is the business covered by the SEP the only business you own?

  • Are all eligible employees participating?

  • Are eligible employees’ compensation being determined per the plan document?

  • Are contributions to SEP-IRA accounts a uniform percentage of the participant’s compensation?

  • Are contributions limited as required by the Internal Revenue Code?

SARSEP CHECKLIST

  • Was the plan established prior to January 1, 1997 and subsequently amended for current law?

  • Do you have 25 or fewer eligible employees?

  • Have employees who are at least age 21 worked for you in at least 3 of the previous 5 years and received at least $600 during the year in compensation all participating in the plan?

  • Is employee compensation for eligible employees determined by the SARSEP document?

  • Are all employee elective deferrals within the limits set by the IRS?

  • Have any excess deferrals been distributed?

  • Do at least 50% of eligible employees make elective deferrals?

  • Are total contributions limited as required by the Internal Revenue Code?

  • Are deposits made in a timely manner?

  • Did the plan pass the annual deferral percentage test?

  • Have you made top-heavy minimum contributions?

401(k) PLAN CHECKLIST

  • Has your plan document been updated within the past few years?

  • Is the plan operating as defined in the plan document terms?

  • Are the plan’s definitions of compensation for all deferrals and allocations used correctly?

  • Were employer matching contributions made according to the plan terms?

  • Has the plan satisfied the ADP and ACP nondiscrimination tests?

  • Were all eligible employees identified and given the opportunity to make an elective deferral?

  • Are elective deferrals adhering to calendar year limits?

  • Have you timely deposited employee elective deferrals?

  • Do participant loans meet the plan document and IRC Section 72(p) requirements?

  • Were hardship distributions made properly?

  • Were top-heavy minimum contributions made?

  • Did you file form 5500?

403(b) PLAN CHECKLIST

  • Is your organization eligible to sponsor a 403(b) plan?

  • Has your organization adopted a written plan?

  • Is the plan operating as set out in the plan document terms?

  • Have all eligible employees been given an opportunity to make a salary deferral to the plan?

  • Are contributions limited to comply with tax law?

  • If making 15-year service catch-up contributions, does the employee have 15 years of full-time service with the same employer?

  • Are elective deferrals within the limits of the tax law?

  • If your plan offers a 5-year post severance provision, are the contributions made through a non-elective method?

  • Are you and your vendors enforcing aggregate loan limits and repayments?

  • Are you and your vendors requiring evidence that hardship distributions meet the plan hardship definitions and requirements?

Remember that even one “NO” answer in a plan question group could mean that you have errors in your plan documents or operations, so use the IRS checklists to stay compliant.

i Have You Had Your Retirement Plan Checkup This Year? IRS website.

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