Employee Plans Learn, Educate, Self-Correct, Enforce Projects - Plans with Self-Employed Individuals


We examined 49 Form 5500 returns of self-employed individuals with employer contributions greater than or equal to $20,000.

We used focused examinations to review:

  1. Plan qualification - compliance with current tax law in form,
  2. Allocations or accruals, and
  3. Deductions.

Project results:

The most common plan errors were:

  • Not having enough fidelity bonding (in 14 plans reviewed)
    • Plans with more than one participant generally must have a fidelity bond in the amount of ten percent of the trust:
      • minimum bonding = $1,000, and
      • maximum bonding = $500,000.
    • Correction involved the plan administrator securing the necessary bonding for plan fiduciaries.
  • Improper allocations of contributions and forfeitures (in 5 plans reviewed) caused by:
    • not using compensation as defined in the plan
    • improperly calculating self-employment earned income
    • allocating forfeitures in the wrong plan year

Other errors included:

Many of the errors noted during this project were caused by not following the plan document provisions.

Avoiding the errors:

Talk with your plan administrator or pension professional to determine if your plan is up to date with the law. Setting up operating procedures and internal controls for the plan is an important first step. If you need help, a benefits professional can help you set up a system that works for you and your retirement plan.

If you discover your plan wasn’t operated according to its written plan provisions or with the law, then consider correcting the errors using our Employee Plans Compliance Resolution System.