IRS Initiates Benefit Plan Compliance Review

IRS Issues Comprehensive 401(k) Questionnaire

In May of 2010, the Internal Revenue Service (IRS) initiated a 401(k) compliance review by sending a notice to complete a 46-page 401(k) Compliance Check Questionnaire to 1,200 plan sponsors. This questionnaire was sent to a random sample of 401(k) plans from those who had filed a Form 5500 for the 2007 plan year.

According to the IRS, the questionnaire was developed because of the critical role that 401(k) plans play in the private retirement system. Studies indicate that 401(k) plans are by far the most non-compliant type of retirement plan. Federal agencies and Congress have adopted tough new rules that place responsibility for mismanaged retirement plans squarely in the hands of company directors and officers. Penalties and earnings lost by participants are regularly assessed to plan sponsors for non-compliance and can be sizable.

Plan sponsors receiving the questionnaire should carefully consider their responses. Subsequent audits, fees, or penalties may result from your answers. If you receive such a questionnaire, White, Nelson & Co. can assist in completing the questionnaire and determining how your answers may have future implications.

With the constant change in regulations by Congress and the Department of Labor (DOL), it is difficult to stay abreast of your responsibilities as a plan sponsor. We have compiled several questions to help you determine the current level of compliance with your fiduciary responsibilities as follows:

1. Do you have an investment policy statement? When was the policy last updated?
2. When was the last time your investment portfolio was analyzed by yourself or your advisor?
3. When was the last time your plan document was reviewed to verify definitions of eligibility, compensation, and loan terms are consistent with the way the plan is administered?
4. Do you have minutes or other documentation to support your decisions and administration? Do you have regular employee educational meetings that are documented?
5. Is your fidelity bond in the amount prescribed by the Department of Labor?
6. Are your contributions being remitted within the guidelines specified by the DOL, including loan repayments?
7. Are contributions reconciled from payroll information to administrator reports both in total and by employee on a regular basis?
8. Are reconciliations performed to ensure that forfeitures are calculated correctly on employee distributions?

As a member of the AICPA Employee Benefit Plan Audit Quality Control Center, White, Nelson & Co. is committed to maintaining and deepening our expertise in the area of retirement plans. We want to assist you in protecting yourself adequately with regard to your retirement plan. To that end, we have developed a compliance review that can help you assess your plan’s compliance by testing, on a sample basis, certain key provisions and areas where mistakes are commonly made. This compliance review is offered for a flat fee, and can be helpful whether or not you receive the IRS questionnaire.

If you are concerned that you may not be covering your fiduciary responsibilities adequately or that your current providers are not serving you competently, please do not hesitate to contact us. We can provide expert advice, answers to your questions, and refer you to alternative providers where necessary. Additionally, if you are interested in a compliance review of your plan for a flat fee, please contact Lynne Houri or Brian Wilterink, two partners who specialize in employee benefit plan audits. We welcome the opportunity to assist you.

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