An Employer’s Guide to Annual Retirement Plan Compliance Requirements

MARCH 9, 2022

Do you have a retirement plan compliance checklist? If you think your organization doesn’t need one this year, think again. Legislative and regulatory changes, as well as organizational changes, can affect your plan.

Whether you sponsor a defined contribution (DC) or a defined benefit (DB) plan, you have a fiduciary responsibility every year to ensure your plan is operating according to the rules and regulations and governing plan documents.

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Create Your Compliance Checklist for 2022

No matter what type of plan you have, or whether it’s administered in-house or outsourced to a professional recordkeeper, consider conducting a proactive operational compliance review, or self-audit, to help your organization avoid added costs and liabilities in the future.

To guide you in conducting a thorough review of your plan over the next few months, create a retirement plan compliance checklist. Include everything from documentation and benefit calculations to day-to-day administrative processes.

The U.S. Department of Labor (DOL) and Internal Revenue Service (IRS) periodically publish lists of the most common compliance issues they find when reviewing retirement plans. The 10 most common compliance issues include:

  1. Required amendments: Employers must periodically update plan documents to reflect statutory and regulatory changes. Any required updates and their deadlines must be strictly followed to maintain the plan’s qualified status.
  2. Definition of compensation: Review your plan documents and operations to ensure any changes in the definition of compensation are properly reflected and are being administered accurately. Failing to define and administer compensation correctly can result in costly operational errors, which require correction under the IRS’s correction programs.
  3. Plan eligibility: Review your plan’s eligibility rules to ensure they are being administered properly. For example, if new employees are permitted to enroll in the plan after one year of service (as defined in the plan), there should be no employees with less than one year of service participating in the plan.
  4. Loans: DC plan sponsors should review their plan’s loan provisions to ensure loans are being administered in accordance with the terms of the plan’s written loan policy.
  5. Vesting: Vesting provisions must be stated in the plan and the summary plan description and followed accurately. Any changes to vesting rules in the plan must be revised in the plan document and communicated to participants through a summary of material modifications.
  6. In-service distributions: Distributions to participants (DB and DC plans) can only be made upon certain events or when reaching a specific age. Plan sponsors should review their plan administration to make sure distributions to participants are being made in accordance with the terms of the plan.
  7. Required minimum distributions (RMDs) generally must be made to plan participants who reached age 70 ½ on or before December 31, 2019, or who reached age 72 on or after January 1, 2020. On a discretionary basis, and as provided in the plan, you may continue to allow actively employed participants (unless they are a 5% owners), who have reached age 72 to continue to defer the commencement of RMDs until the year they retire, and surviving spouses of participants may delay commencing RMDs until the deceased participant would have attained age 72.
  8. Nondiscrimination and coverage testing: Nondiscrimination testing is designed to ensure a plan does not inappropriately benefit an employer’s highly compensated employees; in other words, that the plan’s benefits are comparable for all participants. Coverage testing is designed to ensure that qualified plans cover a fair cross-section of highly compensated and non-highly compensated employees. Required testing must be completed annually. Failed testing results must be addressed as soon as possible, and corrections must be made in a timely manner.
  9. Missing participants: Most plan administrators have encountered situations in which participants cannot be located — uncashed checks, returned mail or the failure to respond to benefit election packages, for example. The DOL has issued detailed guidance, which the IRS agrees with, regarding the steps plan sponsors should take to locate missing participants and to avoid the issue in the first place.
  10. Late contributions: For 401(k) and 403(b) plans, late deposit of participant deferrals is a common compliance concern. These deposits are generally due on the earliest date the deferrals can be segregated from general assets. When the deposits are late, interest must be paid on the late contributions and an excise tax is generally assessed. Additionally, late contributions should be corrected using the DOL’s Voluntary Fiduciary Correction Program.

While this list is not exhaustive, it’s a good reference for areas of focus for your plan review. USI Consulting Group (USICG) finds compliance issues in at least one-third of the plans we review. We can assist you with the review process and with correcting any found errors.

Once you have a checklist, set a timeline for completing it. A compliance review can take between six weeks and six months to complete, and you can start the process by answering these questions:

  1. Are there any recent statutory or regulatory changes affecting your plan?
  2. Does your plan document reflect how the plan is currently being administered?
  3. When was the last time your benefits and payroll teams reviewed the wage types to confirm they are properly included in or excluded from plan compensation?
  4. Have there been organizational changes to your (acquisitions, spin-offs, mergers) that impact the plan’s operation?
  5. Has your organization made any changes to its payroll systems?
Case Study: Controlled Group Testing

An engineering company engaged USICG to prepare controlled group testing and request the relevant retirement plan data for the related entities within the controlled group from the plans’ recordkeepers. We reviewed an organization chart and discovered a few entities were not included in the testing data received from the recordkeepers. Previous controlled group coverage and non-discrimination testing did not include these entities for the plan years in which they should have been included.

We further assisted by gathering the data, performing the controlled group testing for the incorrect years on the entire controlled group (including the missing entities), and establishing an annual process to review any changes in the organizational structure. This discovery saved the company the time, expense and pressure of having to correct this compliance issue if it had been found during a DOL or IRS audit.

© 2022 USI Consulting Group. All Rights Reserved

This information is provided solely for educational purposes and is not to be construed as investment, legal or tax advice. Prior to acting on this information, we recommend that you seek independent advice specific to your situation from a qualified investment/legal/tax professional.