EBP tax compliance testing tips

Written by promotiondept

April 13, 2021

EBP tax compliance testing tips The necessity of a recent make-it-right payment of about $1 million illustrated the importance of establishing whether an employee benefit plan (EBP) client has any related parties. For four years after an acquisition, two companies under common control had employee benefit plans that should have undergone compliance testing on a […]

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EBP tax compliance testing s

The necessity of a rect make-it-right paymt of about $1 million illustrated the importance of establishing whether an employee befit plan (EBP) clit has any related parties.

For four years after an acquisition, two companies under common control had employee befit plans that should have undergone compliance testing on a combined basis. Instead, the companies did testing on an individual company basis.

Wh the affiliation was discovered, it took a paymt in the neighborhood of $1 million to one of the plans to erase inequities betwe the two plans, and a filing under the IRS employee plan correion program was needed to confirm the correive procedures met federal requiremts.

Employee Benefit Plans Conference d for May 3–5. Ruda will be joined by Kar Field, J.D., a sior direor with RSM US LLP, and Cindy Dwyer, CPA, presidt of MHM Retiremt Plans Solutions LLC. Their sessions will :

ing who is in a clit’s controlled group is a necessity, and the speakers said it’s more difficult than it would seem to figure out. The praitioner might deal mainly with a recordkeeper and human resources represtatives who might not fully the question wh a praitioner asks if the company is part of a controlled group.

“Wh you’re ag these controlled group questions, you have to get to the right ,” Field said. “The CFO should know who owns the company and what other companies they’re related to. Other contas within the company might not be as aware of the ownership nuances.”

Coverage testing helps establish whether at all levels of the company are befiting appropriately from the plan. Wh a plan doesn’t cover all employees or a company maintains mulle plans covering differt groups of employees, testing can get complicated.

A company may need to make a correive contribution to a plan that is out of compliance with this or other rules established to make befits equitable.

“But oft there are differt advanced testing techniques that can be used to make a plan that inilly appeared to be failing to aually pass, so you don’t automatically d up going into one of the correion programs,” Dwyer said.

Part of the panelists’ message is: “Don’t panic too early,” Field said.

“There may be a way to fix this,” she said. “It may take an auary. It may take some other calculations. We may be able to keep it from failure. But not always. Unfortunately, I think all of us have run across plans that had no way to fix them other than to take them into correion.”

Layoffs and other employee departures as a result of the coronavirus pandemic have made the top-heavy diagnosis particularly challging, though, for employers. A plan is considered top-heavy under the Internal Revue Code wh key employees own more than 60% of the value of the plan s.

Field cited one company’s defined contribution plan with a matching contribution that workers received only if they were employed on the last day of the year.

That company had job cuts among rank-and-file employees during 2020, but highly compsated employees stayed and received their matching contributions, which disrupted the plan’s balance.

“They ded up with the plan too heavily favoring the higher-compsated,” Field said.

These are the types of testing challges EBP tax professionals need to keep a special eye out for this year.

While there are certain core compliance tests that apply to every plan, other tests may be appropriate for a particular plan.

“There oft are tests that, depding on the plan, may not apply,” Dwyer said. “So, one [objeive] is just ing what tests you need to be concerned about and th presting ough and accurate information to the recordkeeper or the person responsible.”

K Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial direor.


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