By Paula Aven Gladych
If a company retirement plan isn’t in compliance with IRS
or Department of Labor regulations, both employers and employees could be hurt financially.
In 2013, the DOL collected $1.69 billion in fines, voluntary fiduciary corrections and informal complaint resolutions, a 33 percent increase over 2012’s $1.27 billion tab.
When plans are out of compliance -- and according to Department of Labor data, the problem is getting bigger all the time -- employers or their employees are stuck paying taxes and penalties.
"Most 401(k)s and pension plans are not in compliance with IRS or Department of Labor regulations. The shocking part is that most employers don't care and only correct the problems when they get caught," according to Brett Goldstein, director of retirement planning at American Investment planners LLC, in Jericho, N.Y.
The most common DOL
violation is the failure of the trustee to timely remit 401(k) contributions and loan repayments to the plan. The most common IRS violation is the failure to have the proper plan documents, he said.
"Most employers and employees don't realize that serious violations can cause a 401(k) or pension plan to lose its tax qualified sttus," Goldstein said. "When a plan loses its tax qualified status, all of the money in the plan becomes taxable to the employee."
Most violations are easy to fix and penalties are reduced through the IRS Voluntary Compliance Program or the Department of Labor's Voluntary Fiduciary Correction Program. To avoid serious violations, Goldstein recommends to employees that they work with their human resources manager
to identify and fix violation before the iRS or Department of Labor discovers them through an audit.
Originally published on BenefitsPro.com