Recently, the Internal Revenue Service (“IRS”) announced that it will be sending a 401(k) Compliance Check Questionnaire to 1,200 randomly selected 401(k) plan sponsors that filed a Form 5500 in 2007. The questionnaire, which contains about 69 questions, seeks information about plan demographics, participation, employer and employee contributions, top heavy and nondiscrimination rules, distributions and plan loans, automatic contribution arrangements, designated Roth features, voluntary compliance and plan administration. The questionnaire must be completed online using a password protected website. Each plan sponsor will receive an individual PIN number and password in the letter received from the IRS.
This is not an audit of your individual plan. However, although a compliance check is not considered an audit, it is still considered an enforcement action to which the plan sponsor must respond. Should a plan sponsor fail to respond to the questionnaire or provide incomplete information, the IRS reserves the right to take greater enforcement action(s) which may include an examination of the individual plan.
According to the IRS, this compliance check will be used to “determine potential compliance issues, gain a better understanding of the reasons for noncompliance and determine any potential plan operational issues.” The IRS has indicated that questionnaire findings will be summarized and are to be used to help the IRS develop additional education materials, improve future compliance and help the IRS focus its enforcement efforts. Should you receive a compliance check letter and questionnaire from the IRS, please be sure to notify your relationship attorney and seek assistance in providing the proper responses.