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Employee Plans News - March 20, 2012 - Exam Priorities…With Monika Templeman

Today’s Discussion: 401(k) Plans – What Else is Going On?

In each issue, Monika Templeman, Director of Employee Plans Examinations, responds to questions and offers insights on retirement plan topics uncovered during audits. You may provide feedback or suggest future topics for discussion by emailing her at:

On February 3, we posted the 401(k) Compliance Check Questionnaire Interim Report to share information from the responses with the retirement plans community. I shared my initial thoughts on the results and explained how you may use the data. In my presentations about the Interim Report, I mention our other 401(k) plan examination efforts. I’ll use this newsletter to give you more details about our work with 401(k) plans.

First, analyzing 401(k) plan compliance remains one of our top operating priorities. We’ll continue to monitor the top errors found on examination (along with errors submitted in the Voluntary Compliance Program) and share these with you so you can assist your clients in finding, fixing and avoiding these errors.

Next, we have LESE projects. These are small, quick projects focused on a specific plan feature and market segment. LESE stands for:

  • Learn (about the compliance issues)
  • Educate (inform the retirement plans community about our results)
  • Self-correct (give plan sponsors an opportunity to correct errors through EPCRS)
  • Enforce (expand the scope of the examination to others within the targeted group)

One LESE project was on top-heavy 401(k) plans. We examined about 50 small plans that may have been subject to the top-heavy requirements and found several errors. Most of these errors match the common mistakes listed in our 401(k) Plan Fix-It Guide, including failure to properly:

  • cover all eligible employees
  • recognize and distribute excess contributions timely
  • deposit elective deferrals timely
  • satisfy the top-heavy requirements

About 14% of the plans in this project failed the top-heavy requirements. Many of the plans didn’t test for top-heavy requirements, and so didn’t make the required minimum contributions. We also found instances of administrators not using the plan’s definition of compensation, which led to top-heavy minimum contribution allocation errors.

Another LESE project focused on potential 402(g) excesses in 401(k) plans. This project yielded different results; only one of 54 plans reviewed had excess 402(g) salary deferrals. There were, however, other plan errors that were unrelated to this project’s subject.

We also performed risk-based examinations on specific industries. The results from these examinations help us determine the most efficient use of audit and outreach resources. We performed 401(k) plan examinations in three market segments:

  • Accommodation & Food Services Industry
  • Administrative & Support, Waste Management & Remediation Industry
  • Wholesale Industry

In each of these three projects, the two most common errors found were:

  • ADP/ACP discrimination testing results
  • untimely deposit of employee elective deferrals

Again, the 401(k) Plan Fix-It Guide contains information on these errors.

We also have a compliance unit (EPCU) that performs soft contact compliance checks with plan sponsors. One EPCU project focused on excess deferrals. It evaluated problems with reporting excessive elective deferrals in Box 12 of Form W-2. The project led to three of every four plan sponsors needing to correct their Forms W-2. Because of our contact, employers corrected software and administration errors that should prevent future problems and filed over 26,000 Forms W-2C, Corrected Wage and Tax Statement.

We also completed a 401(k) Untimely Deferral Deposit project. EPCU is finalizing their report and will post it when completed.

You may hear or read my comments about taking "other data" besides the Interim Report data to design and improve case strategies, to develop follow-up compliance projects, and to develop the appropriate outreach materials. This is some of the “other data” that we will consider when we complete these next steps.

Page Last Reviewed or Updated: 10-Feb-2014