IRS Asks Employers to Answer 401 (k) Questionnaire; Employers Should Proceed With Caution

June 11, 2010
In an effort to increase voluntary compliance, the Internal Revenue Service (IRS) recently announced that it began randomly questioning 1,200 sponsors of 401(k) plans as a part of a compliance check program administered by its Employee Plans Compliance Unit.  Sponsors of the selected plans were expected to receive a letter that was mailed the week of May 17, 2010, describing the program and directing them to a secure website where they will have 90 days to complete an online compliance questionnaire.  The IRS says it will use the information gathered for education, outreach and enforcement actions. The online questionnaire will collect information on the following topics:
  • demographics,
  • plan participation,
  • plan contributions (both employer and employee),
  • top-heavy and non-discrimination rules,
  • distributions and plan loans,
  • other plan operations,
  • automatic contribution arrangements,
  • designated Roth features,
  • IRS voluntary correction/compliance programs, and
  • plan administration.
According to the IRS, completing the questionnaire is voluntary and is not an audit or investigation; however, further enforcement action from the IRS, including a full audit of the plan, should be expected if a sponsor chooses not to respond to the request. Plan sponsors who receive such a request are encouraged to exercise caution when completing the questionnaire by having someone who is knowledgeable about plan compliance requirements complete it, and have a tax or employment law attorney licensed to practice in the state assist with correcting or addressing any compliance issues that may be discovered as a result of the questionnaire.
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