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IRS Launches 401(k) Plan Compliance Project

This month the IRS is launching a new compliance initiative aimed at the retirement plan community, the 401(k) Compliance Check Questionnaire Project. As part of this project the IRS is asking a random sampling of 1,200 401(k) plan sponsors to fill out a 45-page compliance questionnaire. Although the project is styled as an information-gathering initiative, participation is not optional for those plan sponsors unlucky enough to be selected; the IRS cover letter states that failure to respond to the questionnaire will result in IRS enforcement action, including possibly a full plan audit. Selected plan sponsors should receive notice in the mail.

A copy of the comprehensive survey (all 45 pages and 69 questions) is available on the IRS Employee Plans website. The questionnaire requests plan design and operations data related to the following broad compliance topics:

  • 401(k) plan participation
  • Employer and employee contributions
  • Top heavy and nondiscrimination rules
  • Distributions and plan loans
  • Plan administration
  • Automatic contribution arrangements
  • Designated Roth features
  • IRS voluntary compliance programs
  • Other plan operations

The IRS suggests that 401(k) plan administrators, regardless of whether they receive the questionnaire, use the questionnaire as an internal audit tool to identify and correct plan compliance problems. Indeed, the questionnaire presents a unique opportunity for plan sponsors to review their 401(k) plans for issues the IRS deems important and spot any problems before the IRS comes for an audit. If an employer does identify any problems as a result of an internal review it should act promptly to correct those problems through one of the IRS voluntary correction programs – those 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.

The IRS intends to use the information received from the 1,200 recipients of the questionnaire to focus on necessary education, outreach, guidance, and enforcement efforts (in other words, to figure out where the main problems are and steer future audit and education initiatives accordingly). The results are expected to be summarized in a report released sometime next year.

Topics: Plan Administration, Retirement Plans
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