We examined 69 Form 5500 series returns to verify whether non-cash contributions were made to defined benefit or money purchase plans as reported on the Form 5500 series return, and if they were, to pursue potential prohibited transactions. Project results: The most common issues were: Minimum funding: About 10% of plans examined did not satisfy the minimum funding requirements of IRC Section 412. Agents secured 12 Form 5330 returns with excise tax and additional contributions to the plans. Contribution/allocation failures: About 12% of plans examined had contribution/allocation failures caused by not using the plan’s compensation definition or the plan’s allocation formula. Late or non-amender: About 8% of plans audited did not timely amend the plan document for current law. The issues were resolved under the Audit CAP, which required corrections through the adoption of retroactive plan amendments and the payment of a negotiated sanction. 415 limits excesses: About 8% of plans audited made annual additions in excess of the IRC Section 415 limits due to: not ensuring that the IRC §415 limits override the plan’s required contribution. not properly aggregating the money purchase and profit-sharing plans when applying the limit. not limiting the annual benefit. Prohibited transactions: Only one plan made non-cash contributions constituting a prohibited transaction. The agent secured a delinquent Form 5330 and excise tax. Other issues included: Inadequate fidelity bond Eligibility failures Improper participant loan Improper conversion of a plan into a defined benefit 412(i) plan Failure to properly diversify assets and make prudent investments Failure to provide joint and survivor annuity election forms Failure to conduct and pass the ADP/ACP tests Allowing distributions before the participant attained retirement age, death, disability or termination of employment Avoiding the error: Talk with your plan administrator or pension professional to determine if your plan is currently up to date with current law changes. Setting up operating procedures and appropriate 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. Ensure that you are aware of your plan’s terms and that your plan is timely amended for law and regulatory requirements. Failure to timely amend can cause the plan to become non-qualified. Conduct a self-audit of your retirement plan. If you discover that your plan was not operating in accordance with its terms or with the laws, then consider correcting the errors under our Employee Plans Compliance Resolution System. Background: Generally, non-cash contributions made to defined benefit or money purchase plans would constitute a prohibited transaction. See Commissioner v. Keystone Consolidated Industries, Inc., 508 U.S. 152 (1993) and DOL Interpretive Bulletin 94-3, December 28, 1994.
