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CCH® PENSION — 04/12/12

EP exam efforts focus on 401(k) compliance problems

In the latest issue of Employee Plans News, Monika Templeman, director of IRS Employee Plans (EP) Examinations, has provided an overview of EP's 401(k) plan examination efforts.

Templeman noted that in February, the IRS posted the 401(k) Compliance Questionnaire Interim Report to share information from the responses with the retirement plans community. In the most recent IRS newsletter, Templeman has provided details on EP's other 401(k) examination efforts.

Analyzing plan compliance

"First, analyzing 401(k) plan compliance remains one of our top operating priorities," Templeman said. She added: "We will continue to monitor the top errors found on examination (along with the errors submitted in the Voluntary Compliance Program) and share these with you so you can assist your clients in finding, fixing, and avoiding these errors."

LESE projects

"LESE" stands for: Learn (about the compliance issues), Educate (inform the retirement plans community about EP's results), Self-correct (give plan sponsors an opportunity to correct errors through the EPCRS), and Enforce (expand the scope of the examination to others within the targeted group). LESE projects are small, quick projects focused on a specific plan feature and market segment. There are two such projects that impact 401(k) plans.

One LESE project involved top-heavy 401(k) plans. EP examined about 50 small plans that may have been subject to the top-heavy requirements and found several errors. Most of these errors match the common mistakes listed in the "401(k) Plan Fix-It Guide," including failure to properly: (1) cover all eligible employees, (2) recognize and distribute excess contributions timely, (3) deposit elective deferrals timely, and (4) satisfy the top-heavy requirements. About 14% of the plans in this project failed the top-heavy requirements, Templeman said. Many of the plans didn't test for top-heavy requirements, and so didn't make the required minimum contributions. EP also found instances of administrators not using the plan's definition of compensation, which led to top-heavy minimum contribution allocation errors.

Another LESE project focused on potential Code Sec. 402(g) excesses in 401(k) plans. This project yielded different results; only one of 54 plans reviewed had excess 402(g) salary deferrals. There were, however, other plan errors that were unrelated to this project's subject, said Templeman.

Risk-based examinations

EP also performs risk-based examinations on specific industries. The results from these examinations help EP determine the most efficient use of audit and outreach resources.

EP has performed 401(k) plan examinations in three market segments: (1) the Accommodation & Food Services Industry, (2) the Administrative & Support, Waste Management & Remediation Industry, and (3) the Wholesale Industry. In each of these three projects, the two most common errors found were ADP/ACP discrimination testing results and untimely deposit of employee elective deferrals. The "401(k) Plan Fix-It Guide" contains information on these errors, Templeman noted.

Soft contact compliance

The Employee Plans Compliance Unit (EPCU) performs "soft contact compliance checks" with plan sponsors, said Templeman. One EPCU project focused on excess deferrals. It evaluated problems with reporting excessive elective deferrals in Box 12 of Form W-2. The project led to three of every four plan sponsors needing to correct their Forms W-2.

"Because of our contact, employers corrected software and administration errors that should prevent future problems and filed over 26,000 Forms W-2c, Corrected Wage and Tax Statement," Templeman noted.

Untimely deferral project

EP also completed a 401(k) Untimely Deferral Deposit project, said Templeman. The EPCU is finalizing their report and will post it when completed, she added.

Source: Employee Plans News, Issue 2012-1, March 20, 2012.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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