Pension Tension

How To Cope

Here are some important tips on keeping your plan out of IRS trouble:

Select your plan administrator carefully. For small and midsized companies, the administrator is likely to be a bank, a brokerage firm or a local third party that specializes in administering plans. Your aim, Navin says, is to find an administrator who has an outstanding reputation in the community. Be sure to check with your accountant or attorney for a referral. In addition, he recommends that you focus on the individual who will be administering your plan and not the institution.

Once you have found the right administrator, he or she will make sure your plan is kept up to date, all the required consent forms are filed, plan eligibility rules are correctly followed, benefits aren't paid too early or too late, and the amount of employee benefits are properly calculated.

Perform a self-audit. With the help of a retirement plan specialist, make an effort at the end of each year to determine whether you have administered the plan correctly, says Coleman.

Don't ignore trouble if you find it. Things are probably a lot easier to fix than you might think. If you find a problem, you can make use of the IRS' Employee Plans Compliance Resolution System (EPCRS). It is designed to make it easier and less costly than before for business owners to fix plan errors.

EPCRS has four programs at your disposal: the Audit Closing Agreement Program (Audit CAP), the Walk-in CAP, the Administrative Policy Regarding Self-Correction (APRSC) and the Voluntary Compliance Resolution program (VCR). Which of the four programs you use depends on the type of problem your plan has and whether the IRS is actually auditing the plan. Be sure to seek the advice of an expe-rienced pension plan expert to learn which compliance resolution program is right for you. This is complex stuff, and some very lucrative tax benefits are at stake. Says Goldberg, "Don't try to go it alone."

Plan No-Nos

A number of qualified retirement plans contain some violations that will cause them to fail IRS plan qualification tests. Here are some of the most common ones:

Failure to keep the plan up to date to reflect changes in the law

Neglecting to get a spouse's notarized consent for an employee's plan distribution

Incorrectly following plan eligibility rules

Making improper loans from the plan and not fully documenting loans

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This article was originally published in the November 2000 print edition of Entrepreneur with the headline: Pension Tension.

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