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Guest Article

(From the October 24, 2007 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

New IRS Compliance Tool for 401(k) Plans Now Available

It isn't often that someone refers to a compliance tool as "cool," but that is how the IRS describes its new web-based tool designed to help 401(k) plan sponsors avoid, identify, and fix common errors. That may not be everyone's assessment of "401(k) Plan Potential Mistakes," but most probably will find the new tool helpful with keeping their 401(k) plans in compliance with the tax-qualification rules.

The tool focuses on eleven "potential mistakes," as follows:

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? Failure to follow plan terms is a very common mistake.
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 (ADP and ACP)?
Were all eligible employees identified and given the opportunity to make an elective deferral election? (exclusion of eligible employees)
Are elective deferrals limited to the amounts under IRC § 402(g) for the calendar year and 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?

Each potential mistake is listed in a table, followed by tips for identifying, correcting, and avoiding the mistake. The table also includes hyperlinks to more information about each topic, including extensive discussions of each issue, the available correction programs, and the appropriate correction methods. Additionally, there is a general summary and overview of 401(k) plans and the IRS's Employee Plans Compliance Resolution System (EPCRS). The tool is available at www.irs.gov/pub/irs-tege/401k_mistakes.pdf.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations.

If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Tom Veal 312.946.2595, Deborah Walker 202.879.4955.

BenefitsLink is an independent national employee benefits information provider, not formally affiliated with the firms and companies who kindly provide much of the content and advertisements published on this Web site, including the article shown above.