Consistent Documentation Key for Compliance, Speaker Says

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By Kristen Ricaurte Knebel

Nov. 2 — Employee benefit plan sponsors concerned about their plans' compliance should look for “defects” in their documents, operations or design, an attorney said during a conference session.

A plan practices “good compliance” when documentation is consistent across the board, Richard C. Shea, a partner at Covington & Burling LLP, said Nov. 2. That means that the plan document, the summary plan description, the administrative manual and any forms employees need to fill out all line up, he said at the American Institute of CPAs National Tax Conference.

While this reflects a perfect world of plan documentation, it's rare to find a plan with consistent documentation across the board, Shea said.

“You could have a perfect plan document, you could have a summary plan description that lines up with the plan document perfectly, but if the administrative manual doesn’t line up with the first two, you have lots of problems,” Shea said.

Other elements of good compliance include clear governance structure, where the plan's roles and responsibilities are clearly set out, and reliable data and calculation, he said.

Common Plan Defects

The Internal Revenue Service's voluntary correction program has allowed the agency to identify very common plan failures, Seth Tievsky, senior technical adviser, IRS Employee Plans, Tax Exempt and Government Entities Division, said during the session.

Some of those common failures are mistakes with distributions, loan errors and hardship distributions, he said.

Through the voluntary correction program and information the IRS gets from voluntary submissions, “it’s becoming pretty clear what the very common defects are,” he said.

Targeted Audits

Tievsky said the IRS has been more targeted in its audits over the past decade or so, in part by looking for particular plans that could be problematic, or red flags.

While plans should stay compliant and be prepared for an audit, Tievsky said, in the coming year only about a half of one percent of plans will be audited by the IRS. “[S]o, if you’re playing the audit lottery obviously the odds are in your favor,” he said.

Tievsky did stress that there are indicators that the IRS looks for, mostly through information collected in the annual Form 5500 filings and determination letter applications. In addition, the agency chooses certain plans to focus on annually, which for the current fiscal year include multiemployer plans, 403(b) plans, and hybrid defined benefit plans, he said.

“There are so many plans out there and we don’t have significant man power. The likelihood is relatively low, but lightning does strike,” he said.

For more information, see Compensation and Benefits Library’s IRS Audits of Retirement Plans chapter.

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at


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