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Retirement News for Employers - Spring 2012 - Desk Side Chat…With Monika Templeman - Form 5500EZ and Participant Contribution Limitations

In each issue, 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 for discussion by emailing her at: RetirementPlanComments@irs.gov.

Last summer, I discussed our Learn, Educate, Self-Correct, and Enforce (LESE) projects. Now I’d like to share the results from our Form 5500-EZ Participant Contribution Limitations project and explain how you can use these results to help keep your plan in compliance.

Employee Plans looked at Forms 5500-EZ and found that some defined contribution plans appeared to have exceeded the dollar limit for employer contributions under Internal Revenue Code section 415(c), which limits the amount of contributions and other annual additions allocated to each participant during the plan's limitation year. We wanted to determine if these entries were errors or if the employer contributions actually exceeded the 415 limit.

We included plans that appeared to exceed the 415 limit in a group of potential selectees for this project. We then randomly chose over 50 plans that filed Forms 5500-EZ from this pool for examination.

Based on our examination results, we found the following common errors:

  • 415 limit excesses in about 12% of the plans we examined, because the sponsor:
    • lacked practices and procedures to verify whether participants exceeded the limits
    • failed to include designated Roth contributions as annual additions

  • Nondeductible employer contributions in about 12% of the plans, because the sponsor:
    • failed to properly monitor contributions to ensure that amounts allocated to individual participants didn’t exceed the 415 limit
    • didn’t confirm that the contribution made for the tax year was within the IRC section 404 deduction limit

These errors led to our examiners soliciting 37 Forms 5330 and securing excise taxes equal to 10% of the nondeductible contributions.

  • Late or Non-Amenders in approximately 8% of the plans, because the plan sponsor didn’t timely amend its plan for current law.

Based on the results of this LESE project, I suggest you review your plan for potential document and operational errors. Performing an internal “check-up“ is an excellent way to confirm that these common errors don’t jeopardize your plan’s qualified status. If you find mistakes, visit our Correcting Plan Errors page to see if you are eligible for the self-correction program. If you aren’t eligible for the SCP, learn how to submit an application for our Voluntary Correction Program.

Remember, the final “E” in LESE is for “Enforce.” Employee Plans revenue agents will focus on errors found in these examination projects to determine if other plans have the same type of errors. It’s better for you, both in terms of time and money, to find and correct the errors on your own. With that goal in mind, be sure to check out our Fix-It Guides to learn how to find, fix and avoid common plan mistakes.

Page Last Reviewed or Updated: 03-Apr-2014