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Retirement News for Employers- Summer 2010- Desk Side Chat…With Monika Templeman- 401(k) Questionnaire-Why It’s Important to Every 401(k) Plan Sponsor

In each issue, Monika Templeman, Director of EP 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 e-mailing her at: RetirementPlanComments@irs.gov.

The last issue of this newsletter announced the release of the 401(k) Compliance Check Questionnaire Project. Why is the IRS doing this project?

401(k) plans, the fastest growing retirement plan market segment, have a huge impact on the health of the private retirement system in America. These plans have far surpassed defined benefit plans as the preferred retirement vehicle for a significant majority of employers. Plan sponsors avoid a potential funding burden with 401(k) plans since a major portion of the plan is funded through employee contributions. In an EP baseline study of 79 market segments, we found that 401(k) plans have many compliance issues. When we learn the compliance errors found in 401(k) plans and the reasons why they occur, we are able to better direct our outreach efforts and product development.

Would you change the 401(k) plan web products that you have?

We currently have a 401(k) Checklist and the 401(k) Fix-It Guide – Common Problems, Real Solutions. Another reason for this project is to determine how these tools are working. Based on the results of the Questionnaire, we will enhance our current tools and possibly develop new ones to help plan sponsors use good internal controls in effectively maintaining their plans.

Do you have any tips for the1,200 sponsors who received the request to complete the Questionnaire?

I would recommend that they visit the EPCU page and print a copy of the Questionnaire. I would also suggest reading the FAQs. Then, complete the Questionnaire online as instructed within the 90-day period. The Questionnaire recipients can use it to discover and voluntarily correct errors in their plans. Because this compliance check is not an audit, they can use the Self-Correction and Voluntary Correction Programs to correct plan mistakes.

Are you receiving completed Questionnaires?

To date, we’ve received nearly 500 completed Questionnaires. This rate of return is as expected.

Can the employer request an extension of time to complete the Questionnaire?

Yes. Just contact the person on your letter and provide a valid reason for the extension of time.

What tips do you have for plan sponsors who did not receive the Questionnaire?

I highly recommend that all plan sponsors print and complete the Questionnaire and use it as a self-audit tool.

Large employers have internal resources to perform this and other self-audits. Do you have any suggestions for small business owners who may not have these resources?

I appreciate the struggles that many small business owners face and applaud the ones who chose to establish retirement benefits for their employees. It’s important to maintain these plans so the benefits will be there at retirement. Small business owners should invest the time and money to ensure their plans are running properly. An employer who is not comfortable relying on the tools I mentioned earlier has the option of hiring a benefits professional. It’s important to find plan mistakes early because the impact of non-compliance left unchecked can be very costly.

Many small business owners assume that the financial institution that sold them their plan will also maintain the plan. Is this true?

Generally, that is an incorrect assumption. It is best for the employer to perform a self-audit, or hire someone to perform it.

Will you share the results of the project with the retirement plans community?

We plan to post our findings on the EPCU Web page by September 30, 2011. The Questionnaire results will help us identify areas needing additional education, outreach, guidance and compliance activities.

Page Last Reviewed or Updated: 13-Mar-2014