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Internal Controls Policy – Does Your Plan Need One?

Internal Controls Policy

Internal Controls Policy – Does Your Plan Need One? (ask the lawyer #4) Do you wish that you could find a way to avoid plan compliance problems and shorten the length of IRS or Department of Labor plan audits?  We already have a compliance tool that does this called an Internal Controls Policy.

I often get asked by plan fiduciaries to recommend a set of written policies they can put in place to help them meet their responsibilities.  Almost everyone has an Investment Policy Statement (IPS) nowadays, and savvy fiduciaries know about fee policy statements and education policies.  When I suggest an internal controls policy, though, as often as not the response is a blank look, despite the fact that these policies are a great tool for monitoring compliance and for making IRS or Department of Labor audits go more smoothly.

Here’s a quick definition

  • An internal controls policy spells out the procedures plan administrators and recordkeepers will follow to keep the plan in compliance with the huge number of technical rules that must be followed. It isn’t designed only to prevent overpayments or penalties but has a broader purpose of ensuring that the plan is run properly.  Although It is different from a general corporate controls policy designed to prevent financial loss, financial controls, such as a requirement that two people must authorize all expense checks, would be a good addition to your policy.
  • A good policy will include practices such as monitoring all of the IRS tax contribution limits, applying the right definition of compensation to determine contributions (using the wrong definition is a common problem according to the IRS), and making sure that payouts start as required when participants are age 70 ½. It will include filing requirements, such as the ERISA Annual Report (Form 5500), and participant disclosure requirements.  It will also spell out who is responsible for each requirement.

What are the Benefits?

  • Compiling such a policy will make sure that everyone is aware of the requirements and deadlines. It also prevents situations where you and your recordkeeper each thought the other was handling something, and, as a result, it never got done. You don’t want anything to fall through the cracks.
  • The IRS encourages controls policies and will not do an in-depth audit if it sees that good controls are in place. A Department of Labor auditor will also see that you are serious about fulfilling reporting and disclosure obligations.
  • Good controls help prevent operational violations, which can be expensive and time-consuming to correct.
  • If you do still have occasional qualification violations, as almost every plan does, you will catch them earlier with good controls and you may be eligible to self-correct rather than having to pay a fee to use the Voluntary Correction Program or (worse still) to have to make the corrections when errors are discovered on IRS audit. One of the requirements to self-correct is that the plan needs to have in place procedures to facilitate compliance. You will have that covered.

By Carol Buckmann /

Carol is the co-founding partner of our firm.  She is one of the top-rated employee benefits and ERISA attorneys in the United States and is widely known as an outstanding and innovative benefits lawyer, who deals with some of the foremost issues in ERISA, including pension plan compliance, fiduciary responsibilities, and investment fund formation.  Clients and other attorneys seek her advice due to her phenomenal depth of experience on  to complex pension law and fiduciary problems.  She regularly shares her thoughts about new developments in the benefits industry on our Cohen & Buckmann Benefits Blog.  


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