IRS Launches 401(k) Plan Compliance Project, Suggests Plan Sponsors Use
IRS Questionnaire as Internal Audit Tool
June 29, 2010
Last month the IRS launched a 401(k) Compliance Check Questionnaire Project. As part of this project the IRS sent a compliance questionnaire to a random sampling of 1,200 401(k) plan sponsors. Failure to respond to the questionnaire will result in IRS enforcement action, including possibly a full plan audit.
While 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, the IRS has also suggested that 401(k) plan administrators, regardless of whether they received the questionnaire, use the questionnaire as an internal audit tool to identify and correct plan compliance problems.
The questionnaire requests plan design and operations data related to the following broad compliance topics:
- Plan demographics
- 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
As the IRS has suggested, the questionnaire presents an opportunity for plan sponsors to review their 401(k) plans and assess their level of compliance with issues the IRS deems important. If an employer identifies any problems as a result of an internal audit, 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 might be incurred if the problems were discovered during an IRS audit and help avoid the risk of plan disqualification.
Verrill Dana attorneys are experienced in handling all aspects of 401(k) plan administration and design, including evaluating formal and operational compliance, submitting applications to the IRS under its voluntary correction programs, and representing plan sponsors during IRS audits. For more information about our services or assistance in performing an internal audit of your 401(k) plan, please contact any member of Verrill Dana's Employee Benefits and Executive Compensation Department.
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