How to Prevent Errors in Your Retirement Plan’s Internal Controls

There’s never a good time for discovering that your organization’s retirement plan has errors, but the good news is that you can evaluate the internal controls of your plan at any time of year. This type of project might be of particular interest to plans that are approaching large plan status (generally, over 120 if the plan has filed previously).

Recently, the Internal Revenue Service (IRS) issued guidance citing the importance of internal controls in retirement plans and, in particular, how such controls impact the correction process for a plan found to have errors. The existence of retirement plan internal control procedures is a requirement for a plan that otherwise qualifies for self-correction. The IRS also comments that plans that hire service providers are not relieved of this responsibility.

Management personnel of many plans take the approach of learning about common errors found in plans, which isn’t a bad strategy.  In fact, that’s a great place to start.  But if you have an interest in a sound design to prevent problems from occurring in the first place, an internal control review is something you should consider. For example:

  • What is your process for obtaining Form I-9, and ensuring that it is prepared completely and accurately?  Does this data translate into complete and accurate census data for your plan? Are you aware of the penalties for noncompliance with Form I-9?
  • What type of documentation is retained to ensure you have evidence that your plan was offered to each eligible participant? Are you sure you have offered the plan to all eligible employees, as defined by the Plan? Did you provide a Summary Plan Description to every eligible participant, regardless of whether they enrolled?
  • How do you manage inputs of election changes, to ensure completeness, accuracy, and authorization?  Do you retain documentation?
  • For automatic enrollment plans, do you know whether participants are being enrolled timely, based on their eligibility dates?

These are just some examples of areas where controls are sometimes overlooked. If any of the above questions have given you pause, perhaps you should perform an evaluation or consult with an expert.

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