IRS sending comprehensive 401(k) questionnaire to 1,200 employers

The Internal Revenue Service’s Employee Plans Compliance Unit (EPCU) is sending a letter and instructions to a random sampling of 1,200 employers that sponsor 401(k) plans and asking them to complete a comprehensive 401(k) Compliance Check Questionnaire. The letter indicates failure to respond or provide complete information will result in further action or examination of the plan.

What's behind the initiative. The IRS says it developed the questionnaire because of the critical role 401(k) plans play in the private retirement system. There are nearly a half-million 401(k) plans in the U.S., covering more than 50 million participants.  

An IRS team from various areas of EPCU developed the questionnaire. The 1,200 employers selected to participate were culled from a random sample of 401(k) plan sponsors that filed a Form 5500 for the 2007 plan year.  

After conducting an Employee Plans Examinations study of 79 market segments, the IRS found a high rate of non-compliance among 401(k) plans. The IRS Web site states that since 401(k) plans make up more than 60 percent of all retirement plans, “it is important to the future of the private retirement system that [401(k) plans] maintain the highest level of compliance possible."

Information being sought. EPCU will use a secure website to collect responses on:

• demographics;
• participation;
• employer and employee contributions;
• top-heavy and nondiscrimination testing;
• distributions and plan loans;
• other plan operations;
• automatic contribution arrangements;
• designated Roth features;
• IRS voluntary compliance and correction programs; and
• plan administration.

According to the IRS, all plan sponsors will complete the same questionnaire, but some questions might only apply to plans with particular features. The IRS cautioned that "failure to respond or provide complete information will result in further action or examination of the plan" so it appears the IRS will almost certainly follow up on non-responders.

If you receive a notice. Given this statement and the IRS’ actions regarding similar initiatives in the past, we strongly recommend that you notify your WK advisor immediately upon receipt of a notice and forward it to us for review and assistance in responding. Should you have any questions regarding the questionnaire, please contact us at (573) 442-6171 or (573) 635-6196.

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