Featured IRS Project - 401(k) Compliance Check Questionnaire

Posted by Aaron Juckett, CPA, CPC, QPA, QKA on Tue, May 18, 2010
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The Retirement News for Employers – Spring 2010 Edition discusses how the IRS Employee Plans Compliance Unit (EPCU) will be sending a 401(k) Compliance Check Questionnaire (to be completed online) to 1,200 employers sponsoring 401(k) plans:

During the week of May 17th, IRS Employee Plans Compliance Unit (EPCU) will send a letter and instructions to 1,200 employers sponsoring 401(k) plans asking them to complete the 401(k) Compliance Check Questionnaire. The information gathered from the Questionnaire will provide a comprehensive view of 401(k) plans and will help EP maximize its resources for education, outreach, guidance and enforcement efforts while minimizing the burden to compliant plan sponsors.

EPCU will use a secure website to collect responses on the following topics:

  • Demographics
  • Participation
  • Employer and employee contributions
  • Top-heavy and nondiscrimination testing
  • Distributions and plan loans
  • Other plan operations
  • Automatic contribution arrangements
  • Designated Roth features
  • IRS voluntary compliance and correction programs
  • Plan administration

All plan sponsors will complete the same Questionnaire; however, some questions may only apply to plans with particular features. Failure to respond or provide complete information will result in further action or examination of the plan.

The Questionnaire was developed because of the critical role 401(k) plans play in our private retirement system. There are nearly half a million 401(k) plans in America covering over 50 million participants.

Here is a link to the questionnaire. The questionnaire is considered a compliance check and failure to complete it will result in further action:

This contact is a compliance check. A compliance check is not an audit or investigation under section 7605(b) of the Internal Revenue Code or an audit under section 530 of the Revenue Act of 1978, however, failure to complete the Questionnaire will result in further enforcement action. If you have any questions regarding your specific compliance check questionnaire, please contact the Internal Revenue Service promptly at the phone number provided on the letter.

IRS 401(k) Compliance Questionnaires Issued notes that the IRS has used similar questionnaires in the past and has subsequently opened audits based on the questionnaire responses and provides some action items:

In order to proactively address the compliance questionnaire for 401(k) plans, a plan sponsor should consider conducting a self-audit of its 401(k) plan to determine its level of compliance. Conducting a self-audit will allow a plan sponsor to evaluate its 401(k) plan compliance on its own terms. A copy of the questionnaire is available on the IRS website at the URL referenced below. A plan sponsor that identifies issues may use the IRS's Employee Plans Correction Resolution System (EPCRS) to address areas of noncompliance. Under EPCRS, a plan sponsor may correct noncompliance issues through disclosure to the IRS and payment of a fee. Plan sponsors that voluntarily correct noncompliance issues may avoid the increased penalties that would result if the IRS discovers the same issue in an audit.

Topics: Compliance

Aaron Juckett, CPA, CPC, QPA, QKA
Written by Aaron Juckett, CPA, CPC, QPA, QKA

Aaron is President and Founder of ESOP Partners and provides implementation, administration, and consulting services to hundreds of companies. He is a member of The ESOP Association (TEA) and the National Center for Employee Ownership (NCEO).

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