By Janet Nahorney, CPA
Partner
BlumShapiro

During the month of May 2010, the Internal Revenue Service (IRS) mailed a letter to a random sample of 1,200 sponsors of 401(k) plans requesting they complete a 401(k) Compliance Check Questionnaire.  If you filed a Form 5500 for the 2007 plan year, you could be one of the chosen plan sponsors.  The purpose of the questionnaire is to help the IRS determine where further education, guidance and outreach is needed with regard to retirement plans.

The topics covered by the questionnaire include the following:

• Demographics
• 401(k) plan participation
• Employer and employee contributions
• Top-heavy and nondiscrimination rules
• Distributions and plan loans
• Other plan operations
• Automatic contribution arrangements
• Designated Roth features
• IRS voluntary compliance programs
• Plan administration

Plan sponsors should note that participation in this questionnaire is mandatory and the questionnaire must be completed online within 90 days of the date of the notice.  While the IRS has indicated that receipt of this questionnaire does not suggest that there are any compliance issues with your plan, they do state that failure to complete the questionnaire will result in further action, which could include a full examination of your plan.

Due to the complexity of the questions asked in the questionnaire, plan sponsors should consider seeking assistance from their legal counsel, third party administrator or auditor when completing it. If errors in the plan are discovered while completing the questionnaire, the plan sponsor should take the appropriate action to correct the errors in a timely manner.  Since this is not an examination, the IRS-approved correction methods are still available to plan sponsors.

Following is a link to the IRS website with information on the 401(k) Compliance Project:

http://www.irs.gov/retirement/article/0,,id=171015,00.html

For additional information, please contact Janet Nahorney at jnahorney@blumshapiro.com or 860.561.6831

Article contributions made by Paul Soler, Manager, BlumShapiro.