401(k) Fix-it Guide

The EJReynolds 401(k) Fix-it Guide

EJReynolds, Inc.: Ensuring your plan not only runs smoothly but remains in compliance

The day-to-day operation of your retirement plan is a big responsibility. Errors may occur, and when they do, they must be recognized and corrected as quickly as possible. Having an independent consultant in place to look out for your participants and ensure that the plan remains in compliance with all applicable laws and statutory deadlines is imperative.

The right TPA should have Expert Knowledge, Dedicated Service, Great Solutions and lead to growth for you and your participants.

From the IRS 401(k) Plan Fix-It Guide

 Potential MistakeHow to Find the MistakeHow to Fix the Mistake
Corrective Action
How to Avoid the Mistake
1Has your plan document been
updated within the past few
years to reflect recent law
Review annual cumulative list
published close to the yearend
to see if plan made all
required law changes (e.g.,
Notice 2007–94).
Adopt amendments for
missed law changes.
Appendix D, Part II
Audit CAP
Plan Sponsors need to resort to a calendar
(tickler) of when amendments must be
completed. Review your plan document
annually. Maintain regular contact with the
company that sold you the plan.
2Are the plan’s operations
based on the terms of the plan
document? Failure to follow
plan terms is a very common
Independent review of plan
and its operation
Apply reasonable correction
method that would place
affected participants in the
position they would have
been in if there were no
operational plan defects.
Audit CAP
Plan Sponsors need to develop
communication mechanism to make all
relevant parties aware of changes on a
timely and accurate basis (best practices).
Due diligence on at least an annual basis to
ensure plan terms are being followed
3Is the plan’s definition of
compensation for all deferrals
and allocations used correctly?
Review the plan document.EPCRS
Corrective contribution or
Audit CAP
Perform annual reviews of compensation
definitions and ensure that person in
charge of determining compensation is
properly trained to understand the plan
4Were employer matching
contributions made to all
appropriate employees under
the terms of the plan?
Review the plan document to
determine the correct
matching contribution
formula and compare to what
is used in operation.
Correction should be based
upon the terms of the plan
and other applicable
information at the time of
the mistake
Audit CAP
Contact plan administrators to ensure that
they have adequate and sufficient
employment and payroll records to make
5Has the plan satisfied
the 401(k) and 401(m)
tests? (ADP and ACP)
Independent review to
determine if highly
compensated and non- highly
compensated employees are
properly classified.
Correction method for ADP/ACP
test failures: Make qualified nonelective
contributions (QNECs)
on behalf of the non-highly
compensated employees.
Appendix B (section 2.01) Oneto-
one correction method.
Audit CAP
Consider a safe harbor plan.
Communicate with plan
administrator to ensure proper
employee classification. Ensure
both you and the plan administrator
are familiar with the terms of the
6Were all eligible
employees identified
and given the
opportunity to make
an elective deferral
election (exclusion of
eligible employees)?
Review plan document
sections on eligibility and
participation. Check with plan
administrators to find out when
employees are entering the
6.02(7), Appendix A (section
.05), Appendix B (section 2.02).
Employer must make a qualified
nonelective contribution (QNEC)
to the plan on behalf of the
employee that compensates for
the missed deferral opportunity.
Audit CAP
Plan Sponsors need to monitor
census information and apply
participant requirements
7Are elective Deferrals
limited to the amounts
under IRC Section
402(g) for the
calendar year and
have excess deferrals
been distributed?
Inspect deferral amounts for
plan participants to ensure that
limits have not been
Appendix A (section .04)
Distribute excess deferrals.
Audit CAP
Employers should work with plan
administrators to ensure that the
administrators have sufficient payroll
information to verify that the deferral
limitations of section 402(g) were
8Have you timely
deposited employee
elective deferrals?
Determine the earliest date
deferrals may be segregated
from general assets; compare
that date with the actual
deposit dates and any plan
document requirements.
Usually DOL through VFCP for
prohibited transaction. May also
be EPCRS. For both VFCP and
EPCRS: Deposit into the Plan’s
trust all elective deferrals
withheld and applicable earnings
resulting from the late deposit of
amounts to the trust.
Audit CAP
Close coordination with payroll
provider to determine the earliest
date the deferrals deposits can
reasonably be segregated from
general assets and then set up
procedures to ensure deposits are
made by that date.
9Do participant loans
conform to the
requirements of the
plan document and
IRC Section 72(p)?
Review the plan document
and all outstanding loans to
ensure they comply with the
terms of the plan and are
being timely repaid.
EPCRS 6.07,
Appendix F (Schedule 5). Some
failures may be corrected by
corrective repayment and/or
modification of loan terms.
Audit CAP
Review and follow the plan
provisions relating to making loans,
including the amount of the loan,
and repayment terms. Make sure
plan has procedures in place to
prevent loans that are prohibited
10Were hardship
distributions made
Review all in-service
distributions and determine
that hardship requirements of
the plan were met
Appendix B, (Sec. 2.07). Amend
plan retroactively to allow for
hardship distributions. If
impermissible hardship
distribution, have participant
return hardship distribution
amount plus earnings.
Audit CAP
Employers should be familiar with
the hardship provisions included in
their plan document and implement
procedures to ensure that the
provisions are followed in operation.
Employers need to ensure that the
plan administrators and payroll
offices share information regarding
the hardship distributions that are
made from the plan.
11If the plan was topheavy,
were the
required minimum
contributions made to
the plan?
Review the rules and
definitions for top-heavy found
in your plan document. Make
a determination whether your
plan document is top-heavy or
not for each plan year
Appendix A (section .02)
Properly contribute and allocate
the required top-heavy minimum,
adjusted for earnings, to the
affected non- key employees.
Audit CAP
A top-heavy test should be
performed each year.
12Have you filed a Form
5500 series return and
have you distributed a
Summary Annual
Report (SAR) to all
plan participants this
Find your signed copy of the
return and determine if it was
filed timely.
File all delinquent returns.Form 5500 filers,
website. Form
5500-EZ filers
must file and ask
for abatement of
Understand your filing requirement
and know who filed and when. Don’t
assume someone is taking care of it
for you.