Employee Plans Learn, Educate, Self-Correct, Enforce Project - 402(g) Excesses in 401(k) Plans



We examined of 54 Form 5500 returns (including subsequent year pick-ups) where the Form 5500 appeared to reflect that participant contributions may have exceeded the Internal Revenue Code Section 402(g) dollar limits on elective deferrals.

Examination agents used focused examinations and considered:

  1. Plan qualification - compliance with current tax law in form;
  2. Elective deferral limits; and
  3. Actual deferral percentage testing.

Project results:

The majority of plans selected were in form and operational compliance with the law. However, for those plans with issues, the two most common issues were:

  • Failure to secure adequate fidelity bonding.
  • Failure to timely amend the plan to comply with law changes.

Other isolated issues included:

  • Failure to follow the plan terms by including an ineligible employee.
  • Failure to allocate the employer discretionary contributions in accordance with the plan terms.
  • Deductions taken on the plan sponsors’ tax returns in excess of the deductible contributions made to the plans involved.
  • Excess employee elective deferrals not fully corrected prior to our audit, however; this issue occurred only once.

Avoiding the error:

Talk with your plan administrator or pension professional to determine if your plan is currently up to date with the law. Setting up operating procedures and internal controls for the plan is an important first step. If you need help, a benefits professional can help you set up a system that works for you and your retirement plan.

If you discover that your plan wasn’t timely amended to comply with the law, or a self-audit discloses other mistakes, then consider correcting the errors using our Employee Plans Compliance Resolution System. For additional information, refer to the 401(k) Fix-It Guide, which helps you find, fix and avoid 401(k) errors.