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EP Compliance Trends and Tips - Compliance Activities - Applicable Issues - The Employees

Employees and Plan Participation
The biggest trend under this category involves the improper exclusion of employees that are determined, upon examination, to be eligible for the plan. Many factors contribute to this error, some of which include part-time employees that become eligible for the plan and including employees in the plan after a company merger. This error results in potential disqualification of the plan as employees who are otherwise eligible should be receiving contributions from the plan. Discrimination tests and funding issues could also become a problem when this error occurs.

Ineligibility of Employer to Sponsor Plan
A similar issue involves ineligible employers or sponsors for the plans they adopt. This happens mainly in 403(b)/457 plans, but can occur in other types of plans (Voluntary Correction). Plan sponsors should consult a professional when establishing a plan and also when there is a major change in the status of their organization or company to ensure their employer status continues to work for the type of plan they have adopted.

Proper Notification to Employees
Another area where a trend has been established is regarding the lack of proper notification to employees informing them of the existence of a plan, what the plan offers, and changes to the plan. Employers are required to give proper disclosure to their employees at various times. See the SARSEP and SIMPLE IRA Plan trends for more information.

Spousal Consent
Spouses of employees also are affected in the trends found during examinations. Consents have to be made by spouses when the employee elects to receive a benefit in another form other than a joint and survivor annuity. Examinations indicate this is not being done, along with other requirements regarding joint and survivor payments. See the Multiemployer plans and Defined Benefit plans sections for more information.

Misclassification of Employees
One final issue regarding employees involves the administrator misclassifying employees as either highly-compensated or non-highly compensated employees for determining if the plan meets the discrimination testing required for plans. Based on the definition of a highly-compensated employee, employees could change their classification from one year to another. See the 401(k) plans section for more.

Page Last Reviewed or Updated: 30-Sep-2013