Employee Plans Learn, Educate, Self-Correct, Enforce Project - Defined Contribution Plans with Less than $250,000 in Assets


We examined approximately 50 Form 5500 returns of defined contribution plans with:

  • assets valued between $100,000 and $250,000;
  • a plan effective date of January 1, 1997 (or earlier); and
  • disclosed plan distributions.

Project results

The two most common issues were:

  • not timely amending the plan to comply with current law, or
  • not having adequate fidelity bonding.

Plans must timely adopt interim and discretionary amendments, as well as for changes in law and regulatory guidance. Failure to timely amend the plan affects the qualified status of the plan.

ERISA section 412 generally requires plans with more than one participant to have a fidelity bond in the amount of:

  • 10% of the trust:
    • minimum bonding = $1,000
    • maximum bonding = $500,000.

Other issues disclosed during the project included:

  • not timely filing Forms 1099-R PDF for plan distributions,
  • not allocating contributions and forfeitures according to the plan terms,
  • top-heavy failures, including top-heavy minimum contribution failures,
  • not securing joint and survivor annuity waivers,
  • distributions not allowed by the plan terms,
  • not fully vesting participants upon a complete discontinuance of contributions, and
  • not including defaulted loans in income.

In addition, almost one third of the 401(k) plans examined revealed:

  • failure to properly run the discrimination tests, and
  • failure to timely deposit elective deferrals into the trust.

Tips on how to find, fix and avoid these errors can be found in our 401(k) Fix-It Guide.

Avoiding the error

Talk with your plan administrator or pension professional to determine if your plan is currently up to date with law changes. Issues may arise more frequently in smaller plans due to less oversight and weaker internal controls. Setting up operating procedures and appropriate internal controls for the plan is an important first step. One of these procedures should include an annual review of your fidelity bonding compared to the value of the trust assets. If you need help, a benefits professional can assist you with setting up a system that works for you and your retirement plan.

Conduct a self-audit of your retirement plan. If you discover that you did not timely amend your plan to comply with the laws and regulatory requirements, or that you did not follow the terms of the plan during operation, then consider correcting the errors under our Employee Plans Compliance Resolution System. If your self-audit discloses that your fidelity bond does not meet the requirements of ERISA, increase your bonding.

Additional resource