Last week the IRS announced that it will be issuing a “voluntary compliance” 401(k) plan questionnaire to approximately 1,200 companies that sponsor 401(k) plans. The IRS stated that the questionnaires will be sent at the end of this month and may be responded to electronically. With this announcement, the IRS has signaled its intent to focus heavily on 401(k) compliance, stating that 401(k) plans represent the largest area of qualified plan noncompliance while representing the largest base of retirement plan benefits.

Although an employer’s duty to respond to the questionnaire is technically “voluntary,” the IRS did indicate it is very interested in obtaining the data targeted in the survey. Also, IRS cautions that failure to respond will result in further enforcement. Significantly, although receipt of the questionnaire does not technically mean a plan is under audit or investigation, the IRS stated that it intends to use information gathered in the process for future enforcement efforts.

Focus Areas

The areas the questionnaire addresses include:

  • demographics
  • distributions
  • plan participation
  • loans
  • employer & employee contributions
  • designated Roth IRA features
  • top heavy status
  • use of voluntary compliance programs
  • discrimination testing
  • automatic contribution arrangements
  • ongoing operations and administration

The questionnaire is intended to uncover compliance issues in the areas described above. Fortunately, the nature of most problems arising in these areas of focus can be corrected under the various IRS voluntary correction programs. By unilaterally initiating necessary corrections prior to returning the questionnaire, plan sponsors can minimize any enforcement actions/penalties the IRS may pursue. Failure to initiate a self correction of self-identified qualified failures could result in an enforcement action by the IRS against the plan sponsor.