Retirement Plan Compliance Case Study: What You Don’t Know CAN Hurt You

The case of the undetected, costly plan errors

Plan Sponsor Scenario

An owner of a small company engaged a CPA to evaluate their business and switch services. The CPA reached out to EGPS to review the retirement plan when she realized there was potential for compliance issues. The EGPS Compliance Team found that the Form 5500 had not been filed for the client’s defined benefit or defined contribution plans for several years. The defined benefit plan had not had valuation work done in many years, ineligible distributions had occurred, and the defined contribution plan document was not restated when required. The prior financial advisor had improperly instructed the business owner to stop the filings, start a new defined contribution plan, and incorrectly distribute plan assets from the defined benefit plan before they were eligible to do so.

EGPS Action and Outcome

Our Compliance Team took action and prepared the Form 5500 for all previous years. We helped the client minimize penalties by submitting the late filings under the DOL’s delinquent filer’s voluntary compliance program. We restated the noncompliant plan documents and submitted the failure for correction under the IRS’s voluntary correction program (VCP). The plan valuation work was completed and brought up-to-date by our in-house actuaries, and the EGPS Compliance Team corrected the ineligible distribution occurrences. We guided the employer through the corrections by explaining our findings and recommendations to bring the plan back into compliance and minimize risk.

By correcting the plan, the employer avoided an estimate of tens of thousands of dollars in potential late filing penalties and sanctions. The employer also hired an experienced financial advisor to help aid them in future retirement plan decisions.


Key Learnings

In this case, the business owner was unaware of several costly plan errors that would have incurred penalties and sanctions had either plan been selected for audit. The business owner thought he was receiving sound advice from his financial advisor at the time. Engaging an experienced TPA and financial advisor to properly administer the plan is crucial to maintaining compliance. Correcting compliance issues is not without costs—avoiding them from the start is key.

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