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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
Plan sponsors that received the IRS' 401(k) compliance check questionnaire must complete it or they will be contacted by the Service, Employee Plans Director Monica Templeman said on October 21, 2010 during an IRS webinar. Templeman reiterated that the 401(k) compliance questionnaire that was sent to 1,200 plan sponsors earlier this year is not an audit but, nonetheless, should be used by companies as an "internal audit" to fix any problems.
Templeman recommended that plan sponsors use the questionnaire as an internal audit tool to self-correct problems that are found while completing the questionnaire. The questionnaire, Templeman said, does not preclude employers who discover problems with their plans as a result of completing the questionnaire from using the Employee Plans Compliance Resolution System (EPCRS), and to self-correct plan mistakes before the IRS finds them. "The faster you find and fix problems, the less costly the additional ramifications" will be for failures to comply, she said.
Top 401(k) plan errors
According to Templeman, the IRS is seeing some common errors, including plan document failures. Plans have not been updated for current law, added another IRS official. Additionally, there are failures to follow the terms of the plan document and failure to use the plan's definition of "compensation," Templeman said. This is an issue in about 50% of the IRS's examination of plans, she added, and "can really cause a lot of problems."
Results of the compliance questionnaire are also showing that plans are commonly failing to follow the plan's matching contribution provisions, and failing to satisfy the ADP/ACP nondiscrimination testing. "Any failure to follow terms of the plan are problematic because it's a qualification issue," Templeman said.
Plans are also failing to follow plan terms regarding hardship distributions and loan provisions in violation of Code Sec. 72(p). For example, loans are exceeding the $50,000 maximum and the terms of loans that are not being used to purchase primary residences are exceeding five years. In addition, Templeman said, plans are not timely depositing elective deferrals and are failing to observe the Code Sec. 402(g) limits for the calendar year.
Questionnaire results will be analyzed
The IRS will be analyzing the responses received from the questionnaire next year, Janice Gore, IRS EP examinations area manager, Great Lakes, said. Findings will be used to address potential issues through additional education and outreach, guidance and enforcement activities. Among other things, Gore said the IRS may use the results to change its IRS website tools and case selection process. The Service intends to issue a final report and have the report posted early in fiscal year 2012, around October or November, Gore reported.
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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