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EP Team Audit (EPTA) Program - EPTA Compliance Trends & Tips - Defined Benefit Plan Trends

In addition to the Common Trends outlined above, defined benefit plans have unique characteristics that impact daily operation. EPTA audits have focused on areas of concern including benefit calculations and timing and form of benefit distributions.

Inaccurate data used in benefit calculations

Sixth Highest Error Found in all Defined Benefit Plans

Information received from the plan sponsor may be wrong, resulting in overstated or understated benefits. Occurring errors include:

  • Wrong dates of birth for participant and/or beneficiary (resulting in early or late commencement of benefits, affecting eligibility for payments, incorrect joint & survivor factors)

  • Incorrect employment history
    • Date of employment
    • Salary history

Suspension of benefits issues

Suspension of benefits issues arise in a number of situations. The most common failure is the Benefits Notice is not being given. The required content of the notice may be incorrect. (Content is specified in the regulations.) There may also be a failure to include a suspension of benefits provision in the plan document. Finally, benefits may be suspended impermissibly, when the minimum hours required to suspend the benefits are not worked.

Commencement of benefits too soon or too late – at times benefits being paid before correct annuity starting dates

Third Highest Error Found in all Defined Benefit Plans

The commencement of benefits on the wrong annuity starting date is usually the result of bad data. It can be an input error sent from the plan administrator to the paying agent. In the event of a later commencement of benefits, attention must be paid to the retroactive annuity starting date rules. At the very least, interest should be paid on delayed payments. If the benefit is being paid as a lump sum, it is an entirely different procedure (e.g., what lump sum basis to use). 

Pension Protection Act of 2006 (PPA) operation

Among the issues that arise from PPA, many are entwined with the benefit restrictions under the PPA. If benefit restrictions are required to be enforced, the effective date of the restriction may be at issue. There is a significant question of when and in what form the notice of the benefit restrictions is given to plan participants. Also, when benefit restrictions are lifted, when do payments resume? What happens to the missed payments? Are new elections required? If a lump sum was restricted, and annuity payments were being made, is a new election required and what basis should be used for the subsequent lump sum? These questions, and many others like them, are awaiting final regulations.