written by Joe Page

Joe Page head shot

According to the IRS web site – 401(k) plans represent the largest retirement plan market segment and have a significant impact on the health of the private retirement system in America. Employee Plans Examinations, previously conducted a baseline study of 79 market segments, and the findings indicated that 401(k) plans are by far the most non-compliant plan type in the retirement plan universe.

In an effort to improve plan compliance the IRS is sending a questionnaire to 1,200 randomly selected 401(k) sponsors that filed a form 5500 in 2007. The questionnaires were designed to assess compliance with retirement plan regulations. Plan sponsors who receive a letter will complete the Questionnaire by accessing a special Web site.

According to the IRS’s web site the questionnaire categories are:

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

Ultimately the IRS will utilize the information gathered from the questionnaire to publish a report published identifying those areas where additional education, guidance, and outreach is needed; and how the IRS can focus its enforcement efforts to address or avoid non-compliance related to 401(k) plans.

Although the questionnaire is a compliance check, and not an audit or investigation, failure to complete the questionnaire will result in further enforcement action.

The IRS is also stepping up efforts to ensure that retirement plan sponsors are complying with plan audit requirements. Qualified retirement plans with 100 or more participants at the beginning of its plan year is generally required to obtain an audit by an independent Certified Public Accountant unless the plan meets certain exceptions. The IRS has found that many plans are not complying with the audit requirements and as begun an effort to step up its enforcement in this area.

Failure to comply with the numerous rules and regulations surrounding retirement plans can result in disqualification of the plan’s tax exempt status and significant penalties. For instance, failure to file a required 5500 can, in some circumstances, result in a penalty of up to $1,100 per day for each day the filing is late. Willful violations can even result in criminal charges with fines up to $100,000 and imprisonment upon conviction. Please contact us if you have any questions about this project.