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Potentially Frozen Money Purchase Pension Plans – Audit Results

Monika Templeman, Director of EP Examinations, responds to questions and offers insights on retirement plan topics uncovered during audits. You may provide feedback or suggest future topics by emailing her at: RetirementPlanComments@irs.gov.

Project background and purpose

Learn, Educate, Self-Correct, Enforce (LESE) audits are small, quick projects involving Form 5500 returns with pre-identified issues. Unlike other audits, we randomly select returns and don’t use statistical sampling for LESE projects. We select approximately 50 returns to determine if the plans complied with retirement plan law. Our most recent LESE project focused on potentially frozen money purchase pension plans.

Our project goal was to determine if problems occurred in money purchase plans with a Form 5500 showing no employer contributions for the plan year.

Results – potentially frozen plans

Most of the plans audited complied with frozen money purchase pension plan rules. For some plans, we obtained delinquent Form 5330s, collected excise taxes and verified that plans with a funding deficiency made additional employer contributions.

Other problems

In about 13% of the plans, the plan sponsor didn’t timely amend the plan to comply with current law. We resolved this issue using Audit CAP, which generally required the plan sponsor to adopt retroactive plan amendments and pay a negotiated sanction.

Other identified issues included:

  • Not properly reflecting the trust’s assets, income and expenses on the Form 5500 return
  • Not making required minimum distributions (there’s a 50% excise tax for not distributing required amounts)
  • Not distributing terminated employees’ account balances
  • Not having an adequate fidelity bond.

Avoiding the errors

Remember these controls for your plan:

  • Talk with your plan administrator or benefits professional to determine if your plan is updated for current law changes. Not timely amending your plan can cause it to become non-qualified.
  • Set up operating procedures and appropriate internal controls for the plan. A benefits professional can help you establish a system that works for you and your retirement plan. Having effective practices and procedures in place to prevent compliance problems is a basic requirement to be eligible to use the IRS Self-Correction Program to fix operational errors.
  • Know your plan’s terms.
  • Conduct a self-audit of your retirement plan.

Correcting plan errors

If you discover that you haven’t operated your plan according to its terms or current law, correct this error through Employee Plans Compliance Resolution System (EPCRS).

Use the tips in this article and our Fix-it Guides to find, fix and avoid common plan mistakes.

Page Last Reviewed or Updated: 11-Feb-2014