IRS 401(k) Compliance Check Results

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by Stacey L. Spencer, QKA and Tim Ayler, CPA | Team Members of the Employee Benefit Services

401(k) plans are now the most popular type of retirement plan in the US. Currently, there are over 500,000 401(k) plans which cover about 60 million people with an average account balance of $58,000. However, many 401(k) plans do not comply with current regulations.

In 2010, the IRS sent a 401(k) Questionnaire to a random sample of 1200 plan sponsors that solicited information about such topics as plan type, contribution types, nondiscrimination testing, distributions and plan operation. The objective was to look at plan form, operation and compliance and determine how the IRS can improve their outreach and education materials. The IRS recently released the 401(k) Final Report.

Some of the areas of concern noted in the IRS Final Report:

  • Defaulted Loans
  • Top Heavy Plans – failure to provide the 3% minimum contribution
  • Small Employers with Multiple Plans

The IRS will use the findings to:

  • Modify and improve 401(k) compliance tools
  • Produce outreach materials
  • Improve voluntary compliance programs
  • Assess the need for additional guidance
  • Define upcoming projects and enforcement activities

As a result, they are developing a self-audit tool that employers can use to find, fix and avoid costly mistakes. This tool will be available later in 2013. The IRS states that 401(k) plan compliance will be a priority in 2013 and will be a critical focus area in the future.

If you suspect your 401(k) might have compliance issues, it is better to identify and correct them before the IRS discovers the problem.

Contact Information:

Stacey L. Spencer, QKA, Manager, Employee Benefit Services Group | 317-260-4421 | sspencer@greenwaltcpas.com

Tim Ayler, CPA, Partner | 317-260-4401 | tayler@greenwaltcpas.com