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Risk Assessment Program - Results of Examinations of Form 5500 Profit Sharing Plans With Sponsors From the Accommodations & Food Services Industry


This is a summary of the examinations completed in the market segment made up of Profit Sharing Plans sponsored by the Accommodations and Food Services Industry. As of March, 2011 we had examined almost 500 Form 5500 filings.

Project Results:

The results indicated that there was a high degree of noncompliance within this segment. There are two key areas to discuss in this article, plan sponsor business code analysis and the issues found. Each Industry (i.e., Accommodations & Food Services) has business codes based on the North American Industry Classification System (NAICS). The Accommodations & Food Services Industry is made up of approximately 10 business codes. Almost 87% of this segment’s universe have plan sponsor’s who use just 4 of the 10 business codes. We found substantial data in our examinations that plans whose sponsors used the four main business codes had a high degree of noncompliance. As a result of our analysis it would appear that the noncompliance is not limited to any specific business code within this market segment. noncompliance was especially high in plans whose plan sponsors used the business code representing “Limited Service Eating Places”.

The most common failure involved inadequate bonding of plan fiduciaries and persons who handle pension funds, as required by Title I of ERISA, unless you meet one of the limited exceptions. The amount of bonding should not be less than ten percent of the amount of funds handled, but in no event less than $1,000, nor more than $500,000.

Avoid the error by ensuring the person responsible for obtaining/maintaining your Fidelity Bond knows the rules for adequate bonding. Plan fiduciaries and persons who handle pension funds are required by Title I of ERISA to be bonded unless one of the limited exceptions is met. The amount of bonding should not be less than ten percent of the amount of funds handled, but in no event less than $1,000, nor more than $500,000.

The second most common failure involved not timely amending the plan to comply with changes in current law and/or regulatory guidance. This failure specifically affects the qualified status of the plan, so take care to ensure that timely amendments are made to ensure that the plan remains qualified.

Timely amending the plan includes the necessity to ensure the timely adoption of both interim and discretionary amendments, as well as for changes in law and regulatory guidance. For more information regarding this matter and for information relating to our Determination Letter Program, refer to our web page. There is also a more detail explanation of the determination letter program’s Staggered Remedial Amendment Period Revenue Procedure.

Avoid the error Discuss with your plan administrator or pension professional as to whether the 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.  Administrative problems cause a high percentage of pension plan errors. Many times there is a communication breakdown between attorneys, accountants, trustees, and employees helping administer the plan that can cause mistakes to be made. If you need help, a benefits professional can help you set up a system that works for you and your retirement plan.

The third most common failure involves participation/coverage. Participation errors (See Internal Revenue Code 410(a)) occur when a plan does not bring an employee into the plan when the plan document states they should, or brings an employee into the plan contrary to the plan document (i.e., Plan states a participant enters the plan after completing a year of service). Coverage errors occur when the plan does not “cover” (meaning they are a participant) a certain amount of employees as required by Internal Revenue Code Section 410(b).

Avoid the error Poor recordkeeping and lack of knowledge are the two most common errors. Participation data includes an employee’s date of hire, the amount of service completed from the date of hire, and possibly the age of the employee. Errors occur when plan administrators do not maintain records properly. The best way to avoid participation problems is too make sure all the people responsible for administering plan participation know the correct and most current eligibility provisions in the plan.

In order to make sure your plan does not have errors in coverage it is essential that whoever is responsible for administering such has an in depth knowledge of Internal Revenue Code Section 410(b) as this contains the coverage requirements every plan must meet. It is important to ensure the plan meets these requirements.

If during a self-audit or other means, you discover that your plan was not timely amended to comply with the applicable laws and/or regulatory requirements, or where an operational review of your plan discloses other qualification failures, then you should consider availing yourself of our Employee Plans Compliance Resolution System (EPCRS). EPCRS is a comprehensive system of correction programs established by the IRS that enable sponsors of retirement plans that have experienced compliance violations to preserve the tax benefits of their plans.

Page Last Reviewed or Updated: 21-Sep-2016