1. Failure to amend the plan for tax law changes by the end of the period required by the law. This results in a plan failing to operate in accordance with the current law because the plan document has not been amended to affect such change. Currently, the most common law changes that employers have failed to amend their plans for are those employers who use pre-approved plans defined contribution plans who failed to adopt new versions by April 30, 2010 and April 30, 2016. Employers who use individually designed plans failed to update their plan documents by the end of their applicable remedial amendment cycle as set forth in the appropriate Cumulative List. 2. Failure to follow the plan’s definition of compensation for determining contributions. Usually, certain types of compensation are excluded, such as bonuses, commissions, or overtime, or certain types of compensation are included where they should have been excluded. This failure can result in participants receiving allocations to their accounts that are either greater than or less than the amount they should have received. 3. Failure to include eligible employees in the plan or the failure to exclude ineligible employees from the plan. This often occurs in a controlled group situation after a merger or acquisition. Where otherwise eligible employees are excluded, the excluded employees don’t receive an allocation of contributions to which they are entitled. Where ineligible employees are included in the plan, the employer has made additional contributions which it did not need to make to the plan. 4. Plan loans that don’t comply with IRC 72(p). IRC 72(p) plan loan failures often result from the plan sponsor’s failure to withhold loan payments. Where a plan fails to collect loan repayments from participants, the loan is considered defaulted and the participant should be taxed on the loan in the year of default. 5. Impermissible in-service withdrawals. These requests relate to both defined benefit and contribution plans. The law provides that distributions to participants can be made upon certain events or the attainment of a specific age. This failure involves the circumstance where a distribution is made to a participant where the law or plan terms do not permit a distribution. 6. Failure to satisfy IRC 401(a)(9) minimum distribution rules. The law requires that a participant receive a distribution when they attain a certain age. This failure involves the plan not making distributions to participants where they have attained the age for required distributions under the law. The law requires that the participant pay an excise tax of 50% on the amount of required distribution if it is not made timely. The Service will, in appropriate cases, waive the excise tax if the plan sponsor requests the waiver in appropriate situations. 7. Employer eligibility failure. This occurs when an employer adopts a plan that it legally is not permitted to adopt. Common situations are where a government adopts a 401(k) plan or a tax-exempt entity (other than a 501(c)(3) entity or a public educational organization) adopts a 403(b) plan. 8. Failed ADP/ACP nondiscrimination tests under IRC 401(k) and 401(m) not corrected in a timely manner. This failure involves 401(k) or plans with 401(m) contributions whose ADP or ACP tests did not pass and corrective actions were not taken by the end of the following plan year. 9. Failure to properly provide the minimum top-heavy benefit or contribution under IRC 416 to non-key employees. The law requires that if the account balances or accrued benefits of key employees (typically, owners) comprises a substantial portion of the assets of the plan (generally, 60% of plan assets), non-key employees are entitled to receive a minimum benefit or contribution. 10. Failure to satisfy the limits of IRC 415. The law limits the amount of contributions a participant can receive in a defined contribution plan (i.e., a 401(k) or profit-sharing plan) and the amount of benefits a participant can accrue in a defined benefit plan. This failure occurs where the employer or its third party administrator does not monitor the amount of contributions allocated or the amount of benefits accrued by participants.
