IRS Surveying Employers on 401(k) Plan Compliance
Source: Ascensus; Washington Pulse newsletter, May 2010
During the week of May 24, 2010, the IRS began surveying some 1,200 401(k) plan sponsors nationwide. Baden Retirement Plan Services' parent company, Ascensus, has published the following article in its Washington Pulse newsleter for the professionals who might be called upon to assist plan sponsors in completing the questionnaire.
The IRS has begun surveying some 1,200 401(k) plans nationwide. The IRS is seeking information to help gauge current levels of compliance with law and regulations, and to promote what it hopes will be greater voluntary compliance by 401(k) plans. The IRS stresses that the 69-item "compliance check" questionnaire that has been sent to randomly selected employers is not an audit or an investigation. The IRS cautions, however, that failure to complete and return the survey may result in further action, up to a full plan examination. The survey seeks detailed information on plan design, employee participation, contributions, nondiscrimination testing, loans, and other characteristics of the plan and the workforce to which it is offered.
Employers whose 401(k) plans have been selected are likely to look to financial or tax advisors, third-party administrators, outside legal counsel, financial organizations and others who could play a role in assisting or advising them in the completion of this survey. Therefore, such persons or entities should anticipate requests for assistance, and carefully consider their ability and desire to respond.
Why the Survey
Based on past 401(k) audits and plan document reviews, the IRS has become concerned that there may be an unacceptable level of noncompliance in 401(k) plans. The data collected by the IRS in this survey is expected to be used to
- Identify potential compliance issues;
- Identify plan operational issues; and
- Determine what, if any, additional education or guidance might yield better compliance.
Data to be Analyzed
Employers are being asked to provide information chiefly from 2008 plan years (many 2009 fiscal plan years are not complete, and only some 2009 short-plan-year Form 5500 filings have been made). Some questions about 2006, 207, and 2009 do appear on the questionnaire, however.
IRS Tools for Surveyed Plans
The IRS has provided a number of items at its website to help employers and service providers who assist them in the completion of this survey. They include the following.
- IRS Cover Letter: This introduces and provides a concise explanation of the project's purpose.
- Glossary: The glossary is provided as an aid in understanding terminology that is used in the questionnaire. Employers will find it very complete.
- Compliance Check FAQs: This explains in greater detail the process by which plans were selected to receive the questionnaire, the difference between the survey and an audit, and answers other questions that a plan sponsor is likely to have.
- Questionnaire Instructions: These inform the employer how to navigate to the questionnaire, and use of the user ID, password and PIN number.
- Additional 401(k) plan resources: The IRS website also has helpful general information items, including "What are 401(k)s?", and the IRS "401(k) Fix-It Guide." Also linked here is Form 2848, Power-of-Attorney (POA), which may be used by a plan sponsor formally granting a service provider authority to complete the questionnaire on its behalf.
How Service Providers May Help
Some plan sponsors, particularly small employers, may not feel prepared to respond to the technical questions in the survey. Some may also have difficulty complying with requests for data needed for some of the questions. Examples include testing results, number of past hardship distributions, plan reporting, and -- in some cases -- even plan provisions.
Financial or tax advisors, third-party administrators, outside legal counsel, financial organizations, account executives and others who want to offer help may consider some or all of the following.
- Inform the plan sponsor about the IRS compliance project and offer to assist them. Consider creating "talking points" to make it as clear as possible just what is required of the sponsor.
- Offer to "walk through" the ancillary help items at the IRS website, including the glossary, cover letter, FAQs and instructions.
- Advise the sponsor that the plan may delegate authority to another entity or entities to complete the questionnaire, by means of an official power-of-attorney designation (IRS Form 2848, as noted above). Such entity can work directly with the plan sponsor to make sure the needed data is provided, and responses to questions are accurate.
- Recommend to plan sponsors that the IRS questionnaire be completed "on paper" before attempting to complete it online. A service provider may consider "annotating" the questionnaire to remove any doubt as to what information is being sought by the IRS. In cases of shared sponsor/service provider responsibility, their respective duties -- and timing -- may be clarified on an annotated questionnaire. Or, a separate spreadsheet could be created to track the process.
Please contact us with general questions about the IRS 401(k) Plan Questionnaire, or about how a question applies to a specific plan.