After many years of wading through a variety of retirement plan platforms and services, I can honestly say “I will never stop being fascinated”.  I do believe, with 100% certainty, that I will never be able to anticipate every possible compliance issue.    However, with as much certainty, I can say “processes, procedures and effective internal controls are vital to avoiding possible compliance gaps and hiccups and maintain a successful retirement plan.”

The IRS recognizes that gaps and hiccups will arise when comparing FORM, the plan document & design, to the plan’s operations, administrative processes and procedural activities.  The IRS provides guidance for plan sponsors to self-correct with the understanding that it isn’t as simple as just finding the gap or hiccup.  The IRS expects the plan sponsor to take three steps when gaps or hiccups arise… 

First, is finding the problem.  Plan sponsors should not wait until the plan is under audit or examination because self-correction is most likely not an option to correct resulting in higher penalties; possible ineligibility to continue the plan; or even criminal exposure. 

Second, correct the problem.  The Employee Plan Compliance Resolution System, EPCRS, is the IRS program that provides the guidance plan sponsors should look to when correcting the problem.  Not every issue or example will be found in the EPCRS guidance.  However, there are examples, guidance and a variety of correction programs to cure the problems that are bound to arise from time to time.   

Third, but very certainly not the least important, the plan sponsor must strengthen their processes, procedures and internal controls with the intent to avoid gaps or hiccups in the future.  Strong processes, procedures and internal controls require the plan sponsor to “kick the tires” regularly.  Establish a timeline, during your plan year, and set prompts or ticklers for periodic testing of internal controls that are in place ensuring processes and procedures are working to maintain plan compliance.  Many times, changes made to unrelated processes and procedures will alter a data element or amounts stored in the payroll system that will result in a compliance gap or hiccup.    

I’ve often heard plan sponsors say they are overwhelmed by the expectations of the IRS.  I encourage plan sponsors to take one step at a time.  We all know Rome was not built in a day.   And look, over the years, some parts are still standing.  Getting started is the key.  One step at a time, you can build effective internal controls that will last for years to come. 


Focus on the most frequently found problems first, then build your processes and procedures with effective internal controls out by adding over time.  The biggest mistake a plan sponsor can make is never getting started because the job seems too big.  Common gaps or hiccups found by the IRS are: 

Failure to timely amend your plan document:  When changes are made by regulatory agencies or by plan sponsor choice, always remember to communicate the changes to plan participants, in-house people responsible for processes and procedures, and all service providers.  Even if you believe the change won’t affect their activities.

This link to the IRS website will be helpful in understanding expectations for amending your plan:—Failure-to-Timely-Adopt-Interim-Amendments

Failure to review forms:  Many vendors and service providers use the same forms for all types of plans.  Your plan, by design, may include different distribution options or requirements.  All-purpose forms are cost effective for the vendors and service providers, but could facilitate incorrect distributions or tax reporting for your plan.

Failure to identify all eligible employees:  ALL new hires and rehires should be examined each year to be certain they were notified of their rights and provided instructions to enter the plan and contribute.  It is also vital to examine all part time employees, even if they are excluded by class of employees, to be certain they did not work more than 1000 hours during the plan year.  It may be their employee class will change and they will be eligible for plan participation.  Some plans, by design, allow contractors to enter their plan.  This is often overlooked by 457 plan sponsors.

Tis the season and the end of the calendar year.  The majority of retirement plans use a calendar year as their plan year.  Now seemed like the appropriate time to jump back into blogging and remind our plan sponsors to set aside a bit of time before year end and “kick the tires” on your retirement plan.  Even if you test just one control, like comparing the definition of compensation found in your retirement plan document to the compensation that will be pulled from your payroll system and sent to your service provider on your annual census submission.  The amount of compensation is often reported incorrectly and the domino effect of gaps and hiccups that arise from that breakdown in the process can be substantial.  If you are overwhelmed or simply want help, give us a call.  Retirement plans are a passion in our household.  Just ask our children.