DOL PROPOSES DEPOSIT TIMING REGULATIONS

The proposed regulations are intended to provide small plan sponsors with a clear safe harbor to ensure compliance with the deposit standards. Under the proposed safe harbor, participant contributions to a pension or welfare benefit plan with fewer than 100 participants at the beginning of the plan year will be treated as complying with the regulations if the contributions are deposited no later than the 7th business day following the day on which the amounts would have been payable to the participant in cash or following the day on which such amount is received by the employer (in the case of a participant loan payment given to the employer). As a safe harbor, contribution deposits satisfying the requirements of the proposed regulation will be treated as having been made timely even if such contributions could clearly have been segregated from employer assets more rapidly.

Form 5500 Notices

2004 Form 5500 Notices - IRS is mailing delinquency notices in order to update and correct the IRS' records, and to allow nonfilers to become compliant. In some cases, a 2004 form was not required, or had been filed correctly and timely. "We recognize that some of these notices will be received by employers that fully complied with their Form 5500 or Form 5500-EZ filing obligations..."

The following was included in the latest edition of the Employee Plans News, on page 11 (of 12):
In February 2007, the IRS began mailing Taxpayer Delinquency Investigation
(TDI) Notices to employers that failed to timely file Forms 5500 and 5500-EZ for the plan year ending December 31, 2004. The first delinquency notice, CP 403, is normally sent 15 months after an employee plan return was due. The second delinquency notice, CP 406, is sent 15 weeks after the issuance of the CP 403 if the filer did not respond with a completed return or an acceptable explanation as to why it did not need to file a return.

For several years prior to 2007, the IRS had suspended mailing TDI notices.

The reinstatement of these notices is allowing us to obtain missing returns and allowing nonfilers to become compliant. In addition, the responses received to the notices have helped identify and correct EIN, plan number, and return posting discrepancies, and update records.

We recognize that some of these notices will be received by employers that fully complied with their Form 5500 or Form 5500-EZ filing obligations and we ask that these employers allow us to correct our records by responding to the notice as requested.

Living Through a DOL or IRS Audit

Many plans go experience it. Most Plan Sponsors dread it. Those three words that cause instant panic: "You're being audited." But it doesn't have to be painful at all.

Here are some things that I have learned in dealing with plan audits on behalf of our clients.

• There are many reasons a plan may be pulled for audit: Random sampling, complaints from participants, "red flag" data on Form 5500 filings to name a few.
• The agents (whether IRS or DOL) are not "out to get you". The last thing they want to do is disqualify a plan, so they will work with you...as long as you work with them.
• The agents are human. Most are easy to deal with. All have lives outside of audits, and all would prefer a easy-going relationship during the process rather than a hostile one.
• If asked for data or information, provide it. Don't try to hide anything or sugar-coat issues. The agent will discover it one way or another, so best to be up front about any issues that may exist on the plan.
• Better yet, if you know of an issue that exists (late 401(k) deposits for example), correct them right away, BEFORE you are pulled for an audit. That way you can show what the issue was, how and when it was corrected, and the back-up. In most cases this will suffice and no further action may be required.
• Keep copies of everything for at least 5 years. Make sure your Third Party Administrator keeps copies even longer.
• Rely on your Third Party Administrator to assist in the audit. Don't try to handle it alone.
• Know that the audit must take place at your place of business. So try to make the agent comfortable and provide him/her with plenty of room to work. If you stick him/her in a supply room (or meat locker -- YES! I have heard of someone trying that once!), you will come off as confrontational and instantly put the agent in the wrong frame of mind.
• In the end, the auditor is there to ensure the plan is operating correctly, and to protect the employees. It is actually and admirable function, but one misunderstood by most...

Now it may sound like I am sticking up for DOL and IRS agents...and in a way I am. In the dealings I have had with them over the years, it has been the rare case when the agent was difficult to work with or unwilling to compromise. The majority have been a pleasure to work with, and have been more than reasonable in their requests and time-frames provided to get the information.

There is the old saying that you can catch more bees with honey...and I believe this is true. An audit can be quick and painless, or it can be a long drawn out process with negative results. You can control which path the audit goes down...