Category Archives: Industry News

Is Your 401(k) Plan IRS Compliant?

If you answer NO to any of these questions, you may have made a mistake in the operation of your 401(k) plan…

1. Has your plan document been updated within the past few years?                                        If your plan hasn’t been updated to reflect recent law changes, the plan needs to be revised.

2. Are the plan operations based on the plan document terms?                                                 Failure to follow the terms of the plan is a common problem found on audit.

3. Is the plan definition of compensation for all deferrals and allocations used
correctly?                                                                                                                                                               Your plan may use different definitions of compensation for different purposes. It’s important that you apply the proper definition found in your plan document.

4. Were employer matching contributions made to appropriate employees under the plan terms?                                                                                                                                                      The plan terms must be followed when allocating employer matching contributions.

5. Has the plan satisfied the 401(k) ADP and ACP nondiscrimination tests?                       Most 401(k) plans must satisfy yearly ADP/ACP nondiscrimination tests.

6. Were all eligible employees identified and given the opportunity to make an elective  deferral?                                                                                                                                              By supplying your tax advisor with information regarding all employees who receive a Form W-2, you may reduce the risk of omitting eligible employees.

7. Are elective deferrals limited to the IRC Section 402(g) limits for the calendar
Failure to distribute deferrals in excess of the 402(g) limit may result in additional taxes and penalties to the participant and employer.

8. Have you timely deposited employee elective deferrals?
You should deposit deferrals as soon as they can be segregated from the employer’s assets.

9. Do participant loans meet the plan document and IRC Section 72(p)
Defaulted loans or loans in violation of IRC Section 72(p) maybe treated as a taxable distribution to the participant.

10. Were hardship distributions made properly?
If a plan allows hardship distributions, the plan terms must be followed.

11. Were top-heavy minimum contributions made?
If the plan is top-heavy, minimum contributions for non-key employees are required.

12. Was Form 5500 filed?
Many 401(k) plans must make an annual filing with the Federal government.

This checklist can be found on the IRS website at

Do You Know Your Responsibilities as a Fiduciary?

Here’s a 401(k) Fiducairy Checklist…

Plan Documents and Records
You have a complete, current set of Plan and Trust documents that have received IRS
approval and that are up to date with law changes.
Summary plan descriptions (SPDs) and summaries of material modifications (SMMs)
have been timely distributed to all required recipients.
Copies of summary annual reports (SARs) and Form 5500 filings for the past seven years
have been retained.
You have a current copy of the plan’s fidelity bond and any other insurance protecting
the plan or its fiduciaries. You know who is covered under those policies and that the
coverage is adequate.
You have an Investment Policy Statement that reflects current practices and investment
You have service contracts with all of the plan’s service providers. The contracts are
adequate and accurate.
You have committee minutes or other documentation of all fiduciary decisions made for
the prior period (e.g., hiring of service providers, selection and ongoing monitoring of
investments, changes in plan benefits).

Service Providers
You have clear documentation of the responsibilities of each of the plan’s service
All service providers been selected in accordance with the plan’s written procedures, and
is it clear who is responsible for ongoing monitoring of each provider.
You know which providers are fiduciaries for what purposes, and the providers agreed to
such fiduciary status in writing.
You have a defined and documented process for selecting and monitoring service
providers, and those processes have been followed.
You know what fees you are paying for what services, and you have documented the
process you followed to determine that those fees were reasonable.
You have all the information you need from your service provider to complete the
required disclosures on Schedule C of Form 5500.
Beginning on April 1, 2012, you know which service providers are obligated to provide
you with service provider fee disclosures under the DOL’s new rule, and you have
received all these disclosures.

The Plan maintains a written Investment Policy Statement.
If the Plan intends to rely on ERISA Section 404(c), you comply with the 404(c)
The plan’s investments have been reviewed within the time frames (no less frequently
than annually) and according to the procedures outlined in the plan’s Investment Policy
Decisions regarding the selection, retention, and deletion of an investment option are
properly documented (including comparisons with comparable funds) and consistent with
the Investment Policy Statement.
Investment options offered by your current service provider satisfy the needs of the plan,
and are consistent with the standards contained in your Investment Policy Statement.
To the extent participants are responsible for investment decision making, they have
received adequate communications, education and fund alternatives to support that role.
Participants received all the required disclosures under the DOL’s new participant
disclosure rule.
If you intend to use qualified default investment alternative (QDIA), you have provided
the required notice and disclosures and otherwise complied with the terms of the DOL
Regulation on QDIAs.
If your plan invests in employer securities, legal experts in the securities and ERISA
areas have been consulted to address particular issues surrounding investment in
employer securities.

Prohibited Transactions
You have identified all persons and entities involved with the plan who are parties in
To the extent you are paying a party in interest with funds from plan assets, you have
verified that such payments are exempt from the prohibited transaction rules.
You have reliable people and processes in place to ensure that all salary deferral
contributions are remitted timely to the plan trustee.

Plan Operations
The plan is being operated in accordance with the terms of the plan and trust document.
Your service providers keep you informed of plan activity and escalate matters that
require corporate involvement.
Periodic meetings are held with all plan fiduciaries to review their fiduciary
responsibilities and provide fiduciary training as appropriate.
The reports you receive from your service providers are timely and accurate.
When mistakes are made, they are identified and addressed in a timely and accurate
The process of communication (electronic, verbal, or otherwise) used to integrate
services among various providers is timely, accurate and cost-efficient.
Your employees are adequately educated about plan features.
You have a process in place to respond to participant claims against the plan that is in
compliance with ERISA.
You timely file an accurately completed Form 5500.