Employee Benefits | FJG/FYI
IRS Publishes Most Common 401(k) Mistakes
The Internal Revenue Service (IRS) has released a list of eleven of the most common mistakes made in 401(k) plan administration, and how plan sponsors can correct or avoid those errors. Plan sponsors should address the following eleven questions to avoid plan errors:
- Has your plan document been updated within the past few years to reflect recent law changes?
- Are the plan’s operations based on the terms of the plan document?
- Is the plan’s definition of compensation
for all deferrals and allocations
used correctly? - Were employer-matching contributions
made to all appropriate employees
under the terms of the plan? - Has your plan satisfied the nondiscrimination tests?
- Were all eligible employees identified
and given the opportunity to make an
elective deferral election? - Are elective deferrals limited to the
amounts under Internal Revenue
Code section 402(g) for the calendar year? Have any excess deferrals been distributed? - Have you timely deposited employee elective deferrals?
- If the plan was top-heavy, were the required
minimum contributions made
to the plan? - Were hardship distributions made properly?
- Have you filed a Form 5500 series
return, and have you distributed a
Summary Annual Report to all plan participants this year?
The complete checklist can be found
on the IRS website (www.irs.gov) in the
Retirement Plans section. The agency first
uses a table to summarize the potential
mistakes, and then shows how to identify,
correct, and avoid them altogether. Each
component of the table is linked to a more
detailed explanation.
Contact your plan consultant if you have
questions about your plan or any of the
items identified here.