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Employee Benefits Client Alert
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This client alert is intended to inform you of developments in the law and to provide information of general interest.   It is not intended to constitute legal advice regarding a client's specific legal problems and should not be relied upon as such.  This client alert may be considered advertising under the rules of the Massachusetts Supreme Judicial Court.
July 6, 2010
IRS Initiates 401(k) Compliance Check Project

The Project:  The IRS recently initiated a 401(k) compliance check project.  1,200 randomly selected sponsors of 401(k) plans will be receiving compliance questionnaires from the IRS requesting information about their plans on a wide range of compliance topics.[1]

The IRS will use the information it gathers from this project to produce a report that will detail the most common areas of non-compliance and identify areas most in need of education, guidance and outreach.  Because the questions seek information on non-compliance and because incomplete responses can lead to an audit, plan sponsors should have an attorney review their responses before submission to the IRS.

Selection:  The information will be gathered from responses to questionnaires that are currently being sent to 1,200 randomly selected 401(k) plan sponsors that filled out a Form 5500 for the 2007 plan year.


Mandatory Participation:  Selected plan sponsors are required to complete the questionnaire.  Failure to respond or provide complete and accurate information will result in enforcement action.


Response:  Recipients have 90 days to complete the questionnaire and submit their answers online.  Recipients should take the following steps:  (1) designate an internal group of people to be in charge of completing the questionnaire; (2) carefully review the instructions to the questionnaire; (3) limit responses to only the information that is specifically requested; (4) coordinate with third-party administrators to provide as much assistance as possible; and (5) keep a copy of the questionnaire and the responses.

Plans Not Selected:  Plan sponsors who are not selected to participate would be well advised to perform a self-compliance review, based on the questionnaire, in order to see whether their plan is in compliance in each area.  Although this is not required, it may help to avoid problems with non-compliance before they become the subject of IRS action.


The Questionnaire topics are as follows:  (1) Plan demographics; (2) 401(k) plan participation; (3) Employer and employee contributions; (4) Top heavy and nondiscrimination rules; (5) Distributions and plan loans; (6) Plan administration; (7) Automatic contribution arrangements; (8) Designated Roth features; (9) IRS voluntary compliance programs; and (10) Plan Administration/Other plan operations.