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The ideal client is the one that pays its invoices on time....

There is just so much to disagree with I hardly know where to start. How long have you been doing this to your one person clients? Up until right about now (actually in about 2 months) all cash balance plans have been individually designed. Why in the world would you put a client on an individually designed plan when that isn't necessary? You mention flat interest rates, but you don't specify 5%. This is a common error. Use of anything other than 5% results in reductions to Section 415 lump sums. Why would a one person plan opt for a design that reduces the maximum deductible? As far as the 65000 you mention, I don't have time to check that at the moment, but since DC annual additions are use them or lose them most clients will shy away from any DB plan in their 30's unless they can establish with reasonable certainty that they are in the last 10 years of income generation (sport's figure, for example). Otherwise they are trading $100,000 to $200,000 deduction years for $80,000 deduction years. Yuck.

Unless things have changed drastically from when I developed the cafeteria plan training material for ASPPA, there is no one at IRS who has responsibility for these audits. The only time they seem to happen is when a major company (like, I believe, J.C. Penny) gets audited and then they have specialty auditors who look at everything. I think it was Penny that got in trouble years ago for having an employee pre-tax health insurance (which would be a cafe plan) but never actually adopted the plan. Cost them a fortune as I remember. Luke is right: where you see this as an issue is in the due diligence involved in M&A work more than anywhere else.

The issue comes up for me far more often in M&A transactions, where acquirer will question compliance.

In choosing between the IRA and leaving the money in a qualified plan (or rolling to a new business' qualified plan), I think significant consideration should be given to the risk of prohibited transactions where investments are made in "alternative" (non-publicly traded) investments. A PT in an IRA is a nuclear bomb (see the Ellis decision, T.C. Memo. 2013-245 (2013)), whereas it is a penalty tax/disgorgement issue for a qualified plan. Qualified plans can also invest in "qualifying employer securities" with no similar exemption for IRAs. In bankruptcy, you can be sure that creditors will be examining every IRA investment to find any PTs they can.

It is my understanding that it's the first.