The IRS has announced it will be requiring the sponsors of 1,200 401(k) plans to complete an online questionnaire (a Compliance Questionnaire or Questionnaire) regarding various compliance issues. According to the IRS, the 1,200 plan sponsors were selected at random from those who filed Forms 5500 for their 401(k) plans for the 2007 plan year.
Plan sponsors who receive a Compliance Questionnaire must log onto a website using a provided password and ID code and respond to up to 69 questions, many of which have multiple subparts. The questions are divided into the following 10 categories:
- 401(k) Plan Participation
- Employer and Employee Contributions
- Top-Heavy and Non-Discrimination Rules
- Distributions and Plan Loans
- Other Plan Operations
- Automatic Contribution Arrangements
- Designated Roth Features
- IRS Voluntary Compliance Programs
- Plan Administration
Many of the questions require separate responses for the 2006, 2007 and 2008 plan years; otherwise, responses are to be based on the plan's 2008 plan year. The Questionnaire is designed to omit questions that are not applicable based on previous responses – for example, sponsors whose plans do not offer Roth deferrals, automatic contribution arrangements or investments in employer securities will not be asked to respond to specific questions pertaining to these features.
While the Compliance Questionnaire is not an audit or examination of the plan, the IRS has warned that the failure to complete a Compliance Questionnaire "will result in further enforcement action," including a possible IRS examination of the plan.
If you receive a Questionnaire, we recommend that you contact your Drinker Biddle lawyer and your plan's recordkeeper as soon as possible to begin preparing your responses. While some of the questions pertain only to general plan terms, others will require a significant degree of data gathering – some of the most potentially time-consuming questions require disclosure (for 2006, 2007 and 2008) of
- specific data pertaining to your plan's ADP and ACP nondiscrimination testing results (if your plan is subject to these tests);
- participant demographics and compensation;
- annual contribution amounts by type; and
- significant detail on plan loans.
In addition, the Questionnaires require disclosure of any use of IRS Voluntary Compliance programs, including matters that were self-corrected and may not have been disclosed previously to the IRS. Again, we strongly recommend that you contact your Drinker Biddle lawyer if you receive a Questionnaire.
Noting that over 60 percent of all retirement plans are 401(k) plans, and that 401(k) plans are the type of plan for which compliance issues most often exist, the IRS will use the information gathered to create and publish a report. Based on the responses, the report will identify compliance areas where additional education, guidance and outreach is needed. The results will also assist the IRS in focusing its enforcement activities to address and reduce non-compliance in the future.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.