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EP Exam Projects - Risk Assessment Program - Results of Exams of Form 5500 401k Plans With Sponsors From the Accommodation & Food Services Industry


This is a summary of the examinations completed in the market segment made up of 401k Plans sponsored by the Accommodation & Food Services Industry. As of June, 2010 we had examined over 500 Form 5500 filings.

Project Results:

The results indicated that there was a high degree of Noncompliance within this segment. There are two key areas to discuss in this article, business code analysis and the issues found. Each Industry (i.e., Accommodations & Food Services) has business codes based on the North American Industry Classification System (NAICS). The Accommodations & Food Services Industry is made up of approximately 10 business codes. Almost 92% of this segment’s universe have plan sponsor’s who use just 4 of these 10 business codes. We found substantial data in our examinations that plans whose sponsors used all four of these codes had a high degree of Noncompliance. Because of our analysis, it would appear that the noncompliance is not limited to any specific business code within this market segment.

The most common failure involves errors in the ADP/ACP testing and in the payment of the 401k deferrals.

Avoid the error by ensuring all the people responsible for running the tests are knowledgeable in the law (Internal Revenue Code 401(k)/(m)) and the plan language. This includes knowing what contribution amounts and what employee compensation to use in applying the tests.

The other most prevalent failure involves contribution allocation errors. This occurs when the plan sponsor fails to make the amount of contribution required by the formula in the plan document (i.e., 10% of participant’s compensation). This could be for one participant or many participants. Administrative errors (not deposited timely) or oversights (wrong participant compensation used) are the general causes for failure.

Avoid the error 401(k) plans can have multiple types of contributions allocated to the plan. In addition to tax-deferred contributions, there could be employee after tax contributions, employer matching contributions, and employer discretionary contributions. The best way to avoid allocation problems is too make sure all the people responsible for the allocations know the correct and most current allocation formulas and forfeiture allocation provisions. Finally, they must know the correct and most current definition of compensation used in the plan and in the operation of the plan.

Page Last Reviewed or Updated: 19-Sep-2016