Plan Sponsors Need to Use Internal Controls

November 15, 2012 (PLANSPONSOR.com) Effective internal controls are essential to prevent costly mistakes that can jeopardize a retirement plan’s tax-favored status.

Monika Templeman, director of Employee Plans Examinations at the Internal Revenue Service (IRS) says having effective practices and procedures to prevent compliance problems is a basic requirement to be eligible to use the IRS’ Self-Correction Program. Retirement plan sponsors can self-correct insignificant operational errors at any time and preserve the tax-favored status of the plan without having to pay any fees.  

According to Templeman, when auditing a retirement plan, the agent begins by evaluating the plan’s internal controls to determine whether to perform a focused or expanded audit. In addition, if the agent finds plan errors, the strength of internal controls is a factor in the negotiation of the sanction amount under Audit Closing Agreement Program (CAP). The agent will make every effort to ensure that the plan has internal controls in place when the audit concludes.  

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Templeman warns that plan sponsors should keep in mind that hiring a service provider does not relieve them of the responsibility of keeping their plan in compliance. Problems typically occur when there is a communication gap between the employer and plan administrator about what the plan document provides and what documentation is needed to ensure compliance.  

Templeman shares common errors found in audits resulting from miscommunication as well as tools to help plan sponsors strengthen internal controls here.

MetLife Releases Retirement Income Quiz

November 15, 2012 (PLANSPONSOR.com) The MetLife Mature Market Institute's Retirement Income Quiz is now available to the public online.

The 14-question interactive tool was designed to help those planning for retirement determine how much they know about retirement income, and to offer them a better understanding of how to make their money last for the duration of their lives.   

The quiz was presented in 2011 to a test panel of 1,213 preretired Americans aged 56 to 65, and the majority answered only one-third of the questions correctly, indicating misperception and misunderstanding in a number of core areas, such as life expectancy, inflation, retirement income/savings, long-term care and Social Security.   

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Only 45% of respondents knew that experts believe retirees will need 80% to 90% of their preretirement income to maintain their current standard of living. Nearly three in ten (29%) incorrectly believe that retirees should limit the percent they withdraw from their savings each year to 7% to 10%, while in reality experts advise limiting withdrawals to 4% to 6% annually. In addition, just 17% knew that delaying the collection of Social Security by three years would add 24% to the amount they receive.   

The quiz can be taken online here. A printable version is here.

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