IRS Posts Reminder About Two Compliance Issues

October 16, 2014 ( – The Internal Revenue Service (IRS)'s review of Virgin Island plan sponsors signaled a need to remind all plan sponsors about two important issues.

The IRS said it found a few plan sponsors in its review that either did not have adequate fidelity bonding or did not deposit contributions by the required deadlines (see (b)lines Ask the Experts – What Is a Fidelity Bond?”).

Under the Employee Retirement Income Security Act (ERISA), plan sponsors are required to secure fidelity bonds to protect the plan against loss because of fraud or dishonesty by any plan fiduciary or someone who handles the plan’s assets.

The IRS reminds plan sponsors that every plan meeting the bonding requirement is required to secure a bond for at least 10% of the amount of funds handled during a plan year ($1,000 minimum and $500,000 maximum per plan). The Department of Labor (DOL) increased the maximum required bond to $1,000,000 for officials of plans that hold employer securities for plan years beginning on or after January 1, 2008. For more guidance on ERISA fidelity bonding requirements, see DOL Field Assistance Bulletin 2008-04

About the issue of contribution deposits, the IRS reminds plan sponsors that they are required to keep employee contributions and salary deferral contributions separate from the company’s general funds. The DOL requires that the employer must deposit contributions into the trust as soon as administratively possible.

Rules for when an employer must deposit matching or other contributions are different from those for elective deferrals. To obtain a current tax deduction, the employer must deposit matching contributions by the employer’s income tax return filing deadline, including extensions.

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