The IRS recently published an updated list of common plan mistakes found during audits and a sample internal controls questionnaire used by auditors.

The published materials give all plan administrators valuable insights into the IRS's audit process and what the IRS believes plan sponsors can do to avoid common errors in plan administration. Plan sponsors can utilize these tools to assess their plans' current compliance and to correct any mistakes identified.

One of the most common problems . . . is the plan sponsor's failure to adopt timely amendments to comply with changes in the law. The failure to adopt timely amendments could result in significant penalties (possibly even plan disqualification) if uncovered during an audit.

Other common errors found in all plan types include failures to:

• Follow the plan document's terms on plan eligibility, eligible compensation, vesting, and contribution and benefit limitations

• Make required minimum distributions for participants over age 70 1/2

• Properly process and report distributions

• Maintain adequate plan records and internal controls

[A]uditors also suggest ways to avoid making these common mistakes. For example, to avoid mistakes related to eligible compensation, the IRS suggests using a straightforward definition of eligible compensation and using the same definition for multiple purposes within the plan and across plans.

[The sample questionnaire] provides sample questions used to check a plan administrator's procedures and internal controls. The questionnaire contains four sets of questions each directed at various points of plan compliance: human resources, payroll, plan administration and operational failures.

. . . These are important tools that plan administrators may use to conduct self-audits of plan compliance. Plan sponsors should conduct periodic self-audits, as frequently as annually. These self-audits can permit the plan to self-correct errors currently without requiring IRS approval and prepare for eventual IRS audits.

The rest of the story . . . .

View the IRS questionnaire . . . .