Employee Plans Learn, Educate, Self-Correct, Enforce Project – IRC 415(c) Excess in Forms 5500EZ



We examined 49 Form 5500EZ returns of defined contribution plans to determine if contributions exceeded the Internal Revenue Code Section 415(c) dollar limit.

Examination agents used focused examinations and considered:

  1. Plan qualification - compliance with current tax law in form;
  2. Contribution limits; and
  3. Eligibility, participation and coverage.

Project results:

The most common issue from this project was excess nondeductible contributions (approximately 12% of plans examined), generally caused by:

  • failing to monitor the contributions to ensure that they didn’t exceed the dollar limit, or
  • failing to ensure that the contribution was within the deductible limit (25% of compensation limit).

Other issues included:

  • Failure to timely amend plans to comply with current law and regulatory changes
  • Minimum funding deficiencies in money purchase plans
  • Failure to include eligible employees according to the plan terms
  • Failure to include taxable distributions in income

Due to issues discovered, we expanded several audits by including the subsequent year Forms 5500EZ in the examination. In addition, we secured 42 delinquent Form 5330 excise tax returns and four Form 1040 income tax adjustments.

Avoiding the errors:

  • Talk with your plan administrator or pension professional to determine if your plan is currently 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.
  • Consider a self-audit to ensure that the fiduciaries are properly handling plan assets.
  • File all plan returns timely. For example, if you made nondeductible contributions and didn’t timely correct them, you must file Form 5330 and pay a 10% excise tax, and ensure that that the excess contribution isn’t deducted on your income tax return.

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