Here's a worst-case scenario: your company has gotten a little sloppy about all the paperwork required by the IRS and the Department of Labor (DOL) for your pension plan. "You don't even want to imagine how bad things can get," says Thomas Kolb, a partner in the Boston law firm Rubin and Rudman. "If the IRS decides you were not in compliance, you might lose your corporate tax deduction for any funds you contributed to the plan and wind up having to pay the taxes plus back interest and penalties. Then your employees would have to pay taxes plus interest and penalties on any funds they contributed to the pension plan during those years. Then you'll certainly get sued by all your unhappy employees."

Kolb recommends hiring an expert to conduct a one-time comprehensive pension-plan audit (to be supplemented by checkups whenever pension laws change). Focus on the following areas:

Plan documents. Although these are virtually incomprehensible to lay people, an official set of plan documents (generally running from 50 to 200 pages) must be retained in your corporation's files, updated whenever the plan or relevant laws change, and made available to any employee who wants to see them.

Summary plan documents (SPD). Generally 10 or 20 pages long, SPDs explain in plain English the way your plan actually works. "You've got to keep these up-to-date, file them with the DOL, and circulate them to your employees anytime your plan or the law changes," says Kolb. Other rules to be aware of include the need to republish and redistribute SPDs every five years.

Form 5500. This 6-page tax form is, basically, an annual report that must be filed each year for every corporate pension plan. "There are a lot of potential audit triggers that your company could set off if you answer questions the wrong way, so you want to be certain you answer them correctly," says Kolb. (See "Smart Benefits-Plan Reporting," Financial Strategies, January, [Article link].)

Insurance bonds. Federal law requires companies to purchase a fidelity-insurance bond for every pension-fund trustee. To stay in compliance, each person's insurance coverage must equal 10% of a pension fund's assets (up to a maximum bond face value of $500,000). -- Jill Andresky Fraser