Retirement plans have become a standard part of the benefit packages companies offer to recruits, current employees and even those headed toward retirement. The ability to plan and save for retirement is an important need for retirement plans, such as 401(k) plans, fill for the average American worker. While essential to retirement savings, these plans often require a significant amount of administration to remain in compliance with the IRS, Department of Labor (DOL) and other regulatory agencies. There is no shortage of rules and regulations that need to be followed when it comes to participant eligibility, elective deferrals, deferral timing, employer contributions, and various tests to pass including the ADP/ACP tests.
While errors in plan administration are never expected, the reality is they happen. When uncovered, it’s important to take the proper corrective action to remedy the issue for the plan and its participants. The IRS offers various plan correction programs, including the Self Correction Program (SCP). To help clients, prospects and others understand how to use the program, Hanson & Co. has provided a summary of key details below.
What is the SCP?
This is one of three correction programs available to plan administrators to correct significant plan operational failures within two years of when the failure initially occurred. Unlike the other correction programs, there is no need to contact the IRS and no fees associated to participate.
To participate in the program, a significant operational failure must have occurred, which includes failure to follow the terms of the plan, excluding eligible participants, not making contributions as scheduled under the plan terms and/or loan failures. The significance of a plan failure is determined by various facts and circumstances, including other failures that occurred in the same period, percentage of plan assets and contributions involved, number of years the error occurred, affected participants relative to the total number of participants, whether the correction was made soon after discovery and the reason for the failure. The IRS also requires the plan failure must have occurred due to a mistake in applying the plan’s procedures or the procedures were not sufficient to prevent the error from occurring. It’s important to note the plan administrator
Steps to Correction
Since the plan errors eligible for correction under this program do not require IRS notification, it’s important that any issues are resolved quickly. The first step is to be sure the error can be corrected using the SCP. Then determine whether the plan had the appropriate practices and procedures in place at the time the error was committed and take the needed corrections to ensure the impacted participants are placed in a position they would have been in had the error not occurred. Document all steps that were taken to correct the error and adjust all procedures to ensure the mistake doesn’t reoccur. The sooner you find and correct an error, the less costly the mistake will be with the IRS. For this reason, it’s important to conduct a regular review of plan operations.
The IRS has developed plan correction programs to help companies resolve common errors that have may been committed. The SCP offers an easy solution to quickly correct eligible plan failures. If you have questions about the SCP or need assistance with your annual benefit plan audit, Hanson & Co. can help. For additional information please call us at 303-388-1010 or click here to contact us. We look forward to speaking with you soon.