Many employers are unaware of the specific laws they must follow, leading to inadvertent failures and unintentional violations. We provide the expertise needed to navigate these complexities and ensure full compliance.
LRS Provides A Variety Of Retirement Plan Compliance Services including–
Plan audit and correction services, 415 compensation testing, 416 top-heavy and ACP/ADP compliance testing, 410(b) coverage testing, 404 maximum deductions, employer contributions, and any other necessary compliance activities required by a particular plan.
Compliance & Protection For Your Retirement Plan
Compliance & Protection For Your Retirement Plan
Our compliance programs help fiduciaries meet obligations, protect assets, and minimize liability. We offer ongoing plan evaluations and support for corrections, mergers, and fiduciary services. Our complimentary Disaster Recovery Service ensures your documents and records are safe and accessible, even during a disaster.
- Exclusive Benefit Rule properly applied
- Operational compliance with ERISA
- Fee evaluation services
- Diversifying plan investments
- Prohibited transactions with a party in interest
- Fiduciary violation corrections
- Evaluation of plan mergers in compliance with growing governing law and fiduciary prudence standards
Preparation, coordination, and submission of the plan to correction programs, including:
- Internal Revenue Service’s self-correction program (SCP)
- Voluntary correction program (VCP) to IRS EPCRS
- Audit closing agreement program (Audit CAP)
- Voluntary fiduciary correction program (VFCP)
- DOL Self Correction Component of VFCP
- U.S. Department of Labor’s delinquent filer voluntary correction program (DFVCP)
- Reasonable cause letters for delinquent filers
- Form 5500 late filing correction
- Form 5500 service for missed filings
- Support for hard-to-value plan assets
- Real Estate as a plan or participant investment
- Record Keeping Qualified Employer Securities
- Reporting Qualified Employer real property
Common Retirement Plan Compliance Errors
Common Retirement Plan Compliance Errors
Retirement plans can be very complex to maintain. Errors are often inevitable. LRS utilizes prescribed correction methods from the IRS and DOL to help keep your plan in compliance. We assist with common correction needs, including:
Failure to Enroll Eligible Employees
- Missing the enrollment window for eligible employees can lead to penalties and lost savings — a commonly overlooked obligation that results in missed opportunity and potential plan disqualification.
Excluding Part-Time or Temporary Employees Improperly
- Many plans mistakenly exclude part-time, temporary, or seasonal workers who are legally entitled to participate, creating compliance risks by wrongly excluding part-time or Temp employees.
Overlooking Employees in Subsidiaries or Affiliated Companies
- If your business has related entities, you may be required to offer the plan to their employees as well. Failing to do so is a frequent error where a company didn’t offer the plan to employees in a subsidiary or co-owned company.
Auto-Enrollment Errors
- Plans that use automatic enrollment features often fail to properly initiate contributions or apply automatic increases. These errors include failing to deduct automatic contributions and failing to do automatic increase of deduction.
Neglecting Long-Term, Part-Time Employees
- New rules require plans to offer access to long-term part-time employees. Failing to do so is a growing issue as many plans do not offer the plan to long-term part-time eligible employees.
Operating a Solo 401(k) While Employing Staff
- A Solo 401(k) is only valid if there are no eligible employees. Continuing this type of plan after hiring staff, sometimes for years, means the Solo 401k Plan is no longer valid and should not have been maintained, which can lead to plan disqualification and regulatory issues.
Failure to Correct Testing Failures
- Plans that fail required non-discrimination testing must take corrective action, such as refunding contributions to highly compensated employees (HCEs) or making additional contributions to non-HCEs. Not correcting these failures risks Plan disqualification and significant IRS penalties.
Favoring Owners and Key Employees
- Making contributions only to business owners or key employees, while excluding rank-and-file employees, violates non-discrimination rules. This common issue creates inequity in benefits and can trigger failed testing and mandatory corrective actions. This may result in Plan disqualification and significant IRS penalties.
Missing Required Top-Heavy Contributions
- In a top-heavy plan—where owners and key employees hold a large portion of plan assets—employers are generally required to make minimum contributions to non-key employees. Failing to make these contributions violates IRS requirements and can lead to plan disqualification.
Excluding Eligible Employees from Employer or Matching Contributions
- Eligible employees must be offered the same matching or employer contributions as others under the plan’s terms. Mistakenly excluding them can create compliance failures and participant complaints, especially during annual testing or audits.
Miscalculating Match Contributions
- Incorrectly calculating matching contributions—whether too much or too little—can lead to inequities, participant confusion, and potential corrective filings with the DOL or IRS. This often occurs due to payroll system errors or misinterpreted formulas.
Failing to Make True-Up Contributions
- If your plan includes a year-end “true-up” provision to ensure participants receive the full intended match, missing this contribution results in underfunding and a compliance violation. This error is especially common in plans that match per payroll period.
Omitting Required Safe Harbor Contributions
- Safe Harbor plans must deposit either a match or nonelective contribution each year to maintain their Safe Harbor status and avoid testing. Failure to deposit these contributions on time or at all undermines the plan’s compliance and Safe Harbor protections.
Failure to Offer 401(k) to Company Employees
- After funding a business through a Rollover as Business Startups (ROBS) arrangement, the company must continue to operate a 401(k) plan for all eligible employees. Failing to offer the plan beyond the initial setup violates ERISA requirements and undermines the plan’s legitimacy. It’s possible the ROBS investment would be taxed as income to the individual with interest and penalties.
No Contributions Made by Company or Employees
- A functioning 401(k) plan requires ongoing contributions. If neither the company nor its employees have contributed to the plan over time, it raises red flags with regulators and can suggest that the plan is inactive or being misused.
Missed or Nonexistent Form 5500 Filings
- Annual Form 5500 filings are mandatory for most plans. Missing years of filings—or never filing at all—can result in substantial IRS and DOL penalties, and signals noncompliance with basic plan administration requirements.
Qualified Employer Security Misreported on Form 5500
- The company stock or equity purchased with rollover funds (the Qualified Employer Security) must be accurately reported on Form 5500. Misreporting the asset—such as listing the wrong value or misclassifying it—creates audit and regulatory risks.
Failure to Report Qualified Employer Security on Form 5500
- Omitting the Qualified Employer Security from the Form 5500 altogether is a serious reporting failure. It suggests either the plan is being misrepresented or that key compliance elements of the ROBS transaction have not been maintained. A plan with Qualified Employer Security cannot be reported on Form 5500-SF.
No Annual Valuation Performed on Qualified Employer Security
- An annual valuation of the company stock held in the 401(k) is required to ensure accurate reporting and participant disclosures. Failure to perform or document this valuation can jeopardize the legitimacy of the asset and the plan as a whole. Retirement plan assets generally must be valued at least annually.
Record Keeper Won’t Hold or Report the Qualified Employer Security
- Many third-party record keepers are unable or unwilling to custody or track Qualified Employer Securities. If your provider does not support this asset type, critical elements such as valuations, participant statements, and Form 5500 reporting may be incomplete or inaccurate.
Failure to Obtain Required Plan Document Restatements
- Retirement plans must be updated periodically to reflect changes in laws, regulations, and IRS requirements. Failing to restate the plan document on time can result in noncompliance, disqualification risks, and operational failures that affect the entire plan.
Restatement Required Every Six Years
- The IRS mandates that pre-approved plan documents be restated approximately every six years. This applies across most plan types and is a core responsibility of fiduciaries and plan sponsors to maintain compliance with evolving tax law and regulatory guidance.
All Major Plan Types Have Had Required Restatements in the Past Four Years
- Restatement deadlines have applied recently to all of the following plan types. Sponsors who missed these deadlines may already be out of compliance:
- 401(k) Profit Sharing Plans
- Defined Benefit and Cash Balance Plans
- 403(b) Plans for Non-Profit and Church Organizations
Recent IRS Restatement Cycles for 401(k) Plans
- The following are recent mandatory restatement cycles for 401(k) plans. Failure to adopt documents by these deadlines is a common oversight:
- 2010 EGTRRA Restatement – Economic Growth and Tax Relief Reconciliation Act requirements
- 2016 PPA Restatement – Pension Protection Act updates
- 2022 Cycle 3 Restatement – Most recent IRS mandated update for pre-approved plan documents
Missing these restatements can lead to operational errors, a need for IRS Voluntary Correction Program (VCP) filings, or—at worst—plan disqualification. It’s critical that plans operate under a current, compliant document.
Failure to Timely Deposit Employee Contributions
- Plan sponsors are required to deposit employee deferrals into the plan as soon as they can reasonably be segregated from company assets—typically within a few business days. Delayed deposits are considered prohibited transactions and may result in excise taxes, lost earnings reimbursements, and required DOL disclosures.
Late Employee Contribution Deposits
- Contributions are considered late if not deposited within the DOL’s “earliest reasonable” timeframe. Even a single late deposit can trigger fiduciary breaches, especially if the delay is habitual or unjustified. Sponsors must also calculate and contribute lost earnings due to the delay.
Participants Not Given Investment Direction
- In participant-directed plans, failing to provide employees with the opportunity to select their own investments—or not offering a diverse range of options—can increase fiduciary liability. Lack of investment direction can also disqualify the plan from ERISA 404(c) protections, exposing fiduciaries to claims over poor performance.
Use of Pooled Investment Accounts in 401(k) Plans
- Legacy or improperly administered plans may still maintain a pooled investment account, where all participant assets are invested together without individual direction. This practice is not aligned with modern 401(k) standards and can lead to operational and fiduciary concerns, especially around transparency and fairness. Participants may not be receiving annual benefit statements with all required notices and disclosures.
Prohibited Transaction Issues
- Common prohibited transactions include loans to disqualified persons or a party in interest, use of plan assets for company purposes, or improper service provider relationships. Fiduciaries must be vigilant to avoid these violations, which carry financial penalties and disqualification risks under ERISA and IRS rules.
Fiduciary Fee Review and Evaluation
- Plan fiduciaries are required to regularly review plan fees—including administrative, investment, and advisor charges—for reasonableness. Failure to document a prudent fee review process can result in fiduciary breach claims and participant complaints, particularly if fees are excessive or undisclosed.
Department of Labor Voluntary Fiduciary Correction Program (VFCP)
- If fiduciary violations occur, the DOL’s VFCP allows sponsors to correct them and avoid further enforcement action. This includes late deposits, improper loans, and other common fiduciary missteps. Filing under VFCP helps mitigate penalties, but requires thorough documentation and restitution to the plan.
Correction for Late-Filed Form 5500
- Form 5500 must be filed annually to report plan operations and compliance. Filing late without correction can trigger significant IRS and DOL penalties. Plan sponsors may be eligible for reduced fines through the Department of Labor’s Delinquent Filer Voluntary Compliance Program (DFVCP).
No Form 5558 Extension Submitted
- Sponsors may request an automatic 2.5-month extension by filing Form 5558 before the original Form 5500 due date. Failing to file this extension removes any deadline flexibility, making even slight delays in 5500 filing a reportable failure.
Failure to File Form 5500
- Not filing Form 5500 is a major compliance breach. It may indicate that the plan has ceased operation or is not being maintained properly. Corrections must be made promptly to avoid disqualification and escalating penalties.
Correction for Wrong Form 5500 Filed
- Plans must file the correct version of Form 5500 (e.g., 5500-SF, 5500-EZ) based on size and structure. Filing the wrong form can misrepresent the plan and may require an amended return, which still counts as late if the original was incorrect.
Letter of Reasonable Cause
- If a Form 5500 filing was missed or submitted incorrectly, a “Letter of Reasonable Cause” may be submitted to request relief from penalties. The letter must clearly explain the circumstances and demonstrate good faith efforts to comply with filing obligations.
Missing 8955-SSA Forms
- Form 8955-SSA is required to report separated participants with vested balances. Omitting this form from annual reporting can result in incomplete participant tracking and potential regulatory scrutiny, especially during audits or plan terminations.
IRS Form 5330 Filing with Penalty
- Certain reporting failures, like late contributions or prohibited transactions, may require filing IRS Form 5330 and paying an excise tax. This is a critical corrective filing that helps avoid more serious enforcement action.
SOLO 401(k) with Over $250,000 in Assets but No 5500-EZ Filing
- Solo 401(k) plans with $250,000 or more in assets are required to file Form 5500-EZ annually. Failing to do so—even for a single year—can result in penalties and increase the likelihood of IRS inquiry.
Department of Labor (DOL) DFVCP Submission
- The DOL’s Delinquent Filer Voluntary Compliance Program allows plan sponsors to correct late or missed Form 5500 filings at a reduced penalty rate. It’s a key tool for regaining compliance and minimizing enforcement risks when annual reporting obligations have been overlooked.
Uncertain Whether an Audit Was Required
- Plan sponsors are often unaware of the audit threshold requirements. Before SECURE Act 2.0, a 401(k) plan with 100 or more eligible participants at the beginning of the plan year must include an independent financial statement audit with its Form 5500 filing. This criteria changed as of 2023. Not knowing whether this applied to your plan can lead to late corrective action and regulatory penalties.
Large Plan Filed Without Required Audit Report
- Filing Form 5500 as a Large Plan without including the required audited financial statements is a major compliance issue. The DOL may reject the filing and consider it incomplete, triggering penalty notices and increased audit scrutiny.
Audit Requirement Discovered Too Late
- In some cases, sponsors realize late in the process—or after filing—that their plan exceeded the participant threshold and an audit was required. This can result in missed deadlines, the need for an amended filing, and increased administrative costs to retroactively obtain an audit.
Received DOL Letter After Filing Without Audit
- If a Large Plan files without attaching a financial statement audit, the Department of Labor may send a compliance notice or warning letter. These communications require prompt resolution and may include instructions for how to submit a late audit or correct the filing.
Joined a Pooled Employer Plan (PEP) Assuming Generalized Audit Coverage
- Sponsors participating in a Pooled Employer Plan may assume that the pooled structure eliminates the need for an audit. However, audit responsibility may still exist depending on the structure of the PEP, size of the adopting employer, and specific reporting arrangements. Failing to confirm this can result in an unfiled or incomplete audit obligation.
Received a Letter from the IRS – What to Do Next
- If your organization receives a letter or notice from the IRS regarding your retirement plan, it’s critical to act quickly and thoughtfully. Begin by reviewing the notice thoroughly, identifying the issue, and consulting with your plan administrator or ERISA counsel. Delays or incorrect responses can escalate the situation and increase risk of penalties.
EPCRS Self-Correction Program (SCP)
- The IRS Employee Plans Compliance Resolution System (EPCRS) allows plan sponsors to correct certain operational failures internally without filing anything with the IRS. Common self-correctable errors include missed deferrals, incorrect compensation, and improper eligibility exclusions. Using SCP properly can preserve plan tax qualification and avoid costly penalties.
Adopting Best Practices for Ongoing Compliance
- Proactively implementing internal controls, timely plan reviews, and regular reconciliation processes helps avoid common mistakes. Companies should document procedures, regularly train fiduciaries, and maintain a calendar of key compliance dates to minimize risk and demonstrate a culture of compliance. Implementation of such practices is a requirement for using the Self-Correction Program.
Fixing Plan Errors – Is a Filing Required?
- Not all errors require formal IRS filings. Under EPCRS, certain issues can be resolved through Self-Correction, while others require Voluntary Correction Program (VCP) submissions. Determining whether a filing is required depends on the nature, severity, and timing of the error. Filing such a correction through VCP ensures no later action will be taken in case of a later IRS audit.
EPCRS Voluntary Correction Program (VCP)
- When a plan error cannot be self-corrected—or if it involves more significant issues like plan document failures, missed plan restatements, or uncorrected operational issues—a VCP submission is necessary. This process involves submitting a formal request and correction plan to the IRS for review and approval. VCP also applies when corrections are made after the plan has been selected for audit but before the IRS has initiated contact.
Department of Labor VFCP and Self-Correction Component (SCC) Filings
- The DOL’s Voluntary Fiduciary Correction Program (VFCP) allows fiduciaries to correct specific prohibited transactions, such as late deposits of deferrals or improper plan loans, and avoid civil penalties. For eligible violations, the Self-Correction Component (SCC) provides a streamlined way to resolve issues without prior approval. Filing through these programs demonstrates good faith and can significantly reduce enforcement risk.