Art of the Qualified Plan Audit

The New Mandatory Roth Catch-Up Rules Section 603 of the Setting Every Community Up for Retirement Enhancement Act 2.0 (SECURE Act 2.0) added Internal Revenue Code (IRC) Section 404(v)(7) to require catch-up eligible High Earners to make catch-up contributions to their 401(k), 403(b), and 457(b) plans on a Roth basis, effective January 1, 2026. However, … Continued

In Summary Risk of Tainted Assets: Directly merging plan assets preserves their source classification, creating a risk that previous qualification errors in the merged plan (resulting in “tainted assets”) could affect the audited financial statements of the successor plan. Rollovers Eliminate Risk: The optimal way to avoid tainted assets is by having participants conduct rollovers … Continued

In Summary Final Form 5500 Filing, Asset Distribution, and Legal Title: A plan’s Final Form 5500 filing obligation is triggered not by the effective date of termination, but by the complete distribution of all assets. In a merger, the final filing is determined by the date the legal title of the assets transfers to the … Continued

In Summary Funded Plans, the Audit Requirement: The single most important factor determining if a large welfare plan needs a CPA audit is its funding status. If a plan uses a separate trust account (such as a 501(c)(9) VEBA) to hold assets or pay benefits—making it “funded”—it must undergo an audit of the entire plan … Continued

In Summary Understanding the First RMD and Subsequent Deadlines: Your first Required Minimum Distribution (RMD) is due by April 1 of the year after you turn 73 or, if your plan allows, the year you retire (whichever is later). However, 5% owners must begin by 73 regardless of employment. All subsequent RMDs are due by … Continued

In Summary New IRS Guidance for IBO Flexibility: IRS Notice 2024-77 provides flexibility for inadvertent benefit overpayments (IBOs) from retirement plans. It confirms that employers are permitted, but not required, to seek recoupment of funds paid to a participant by mistake. Choosing Not to Recoup Preserves Rollover Status: If a plan sponsor forgives the overpayment, the … Continued

How Does the 403(b) Special 15-Year Catch-Up Contribution Work? Where have you worked, for how long, and how much have you contributed to the 403(b) plan? These are all questions that make up the puzzle pieces necessary to compute each participant’s available 403(b) catch-up. Participants in a 403(b) plan can make an additional contribution once … Continued

In Summary Understanding the True-Up: A true-up provision ensures employees receive the maximum potential employer match by looking at their total annual contributions against their total annual compensation. This contrasts with a per-paycheck match, which only looks at the contribution made from that specific paycheck. This feature is essential for employees who “front-load” their retirement … Continued

In Summary When Good Intentions Go Wrong: Employers who commit operational errors by authorizing 401(k) hardship distributions that were not permitted by the plan document’s provisions can utilize the IRS’s Employee Plan Compliance Resolution System (EPCRS) to resolve these compliance failures. Retroactive Amendments: When the unauthorized distributions could have been allowed under IRS rules (e.g., non-safe-harbor … Continued

In Summary A Warning Against Employer Discretion: “Bleeding-heart” plan sponsors are advised against approving non-safe harbor hardship distributions (like paying for weddings or maxed-out credit cards) on a case-by-case basis, as this discretionary approach risks discriminatory application and potential IRS penalties. The Plan Document Must Dictate Approvals: To remain compliant, any approved hardship reasons—especially non-safe … Continued