Ignoring the IRS Is Not a Good Idea (another example)
On February 23, 2011, the IRS indicated that its 401(k) Compliance Check Questionnaire Project is entering its next phase. As discussed in a prior post, in May 2010 the IRS, through its Employee Plans Compliance Unit, sent letters to a statistically valid sample of 1,200 401(k) plan sponsors who were instructed to complete a questionnaire online by visiting a secure website and using a PIN provided by the IRS. The IRS is now beginning the next phase of the project by evaluating the responses from the completed questionnaires to understand compliance issues, determine how voluntary compliance is working, and identify participant awareness and plan sponsor compliance.
Given the Project's purpose of focusing necessary enforcement, guidance, and outreach efforts, we expect the IRS will steer future audit and education initiatives to problem areas identified through the questionnaire. Plan sponsors should consider using the questionnaire as an internal audit tool to identify and correct plan compliance problems before the IRS steps up its 401(k) plan enforcement activity. As discussed in prior posts (here and here), the IRS voluntary correction programs permit plan corrections for far less cost than if the problems were discovered during an IRS audit and help avoid the risk of plan disqualification.
As to those who did not respond to the questionnaire, the IRS director of plan examinations, Monika Templeman, stated: "We will conduct a full-scope examination of plans whose sponsors did not return the Questionnaire".