401(k) Compliance Questionnaire
Rev. 05/27/10; E-mail Alert 2010-8

During the week of May 17th, the IRS Employee Plans Compliance Unit (EPCU) mailed 1,200 employers who sponsor 401(k) plans an extensive 401(k) compliance questionnaire. In its complete paper form, it is 46 pages long and has 69 questions, many of which are multiple-part questions. All sponsors received the same questionnaire. The employers receiving the questionnaire were randomly selected from the Form 5500s that were filed for 2007. While the questionnaire is about the 2008 plan year, it requires the gathering of data for the 2006, 2007 and 2008 plan years. The questionnaire is to be returned within 90 days.

The employers selected are receiving a letter with instructions for the questionnaire as well as a PIN, Password and Source ID needed to answer the questionnaire on the internet. It is important to note that the questionnaire must be answered electronically, not on paper.  Employers with disabilities who are unable to use a computer are told to contact an IRS contact named in their packet.  As with EFAST2, this raises the issue of employers who do not have computer access, but since employers are not going to be able to complete the questionnaire without professional help, their lack of computer access should not be a real impediment.  The advantage of using an electronic means of answering the questionnaire is that if you specify that certain questions are not applicable, then related sub-questions do not have to be answered.  For example, if the employer indicates that the plan does not offer participant loans, the follow-up loan questions will not appear on that employer’s computer screen.

At recent conferences, IRS representatives stated that the questionnaire should be answered correctly, but that the answers would not be the basis for a follow-up examination. However, at the Mid-Atlantic Benefits Conference, Monika Templeman, Director of Employee Plans Examinations for the IRS stated that plans that are indicating by their answers to the questionnaire that they are not in compliance with the Code, Regulations or the plan document, will be subject to follow-up. The good news is that if the employer discovers the problem while responding to the questionnaire, they may still take advantage of the EPCRS self-correction or voluntary compliance programs. In other words, the employer can remedy the problem under EPCRS before the IRS follow-up.

Note that on the IRS web site it states that this is a compliance check and not an audit under Code section 7605(b) nor under section 530 of the Revenue Act of 1978. The IRS goes on to state that if the employer does not respond to the questionnaire, the result will be further enforcement action. Though not stated on the web page, at the conference the IRS indicated that further enforcement would likely include an examination of the plan.

The employer will most likely not be able to complete the questionnaire without the help of a plan administrator, record keeper, consultant or ERISA attorney. More importantly they should probably not attempt to complete it without the help of one of those parties.  There are questions that — depending on how they are answered — may indicate that the plan is out of compliance. We would recommend that record keepers, TPAs, and service providers consider contacting all your clients and advising them that if they received a copy of the questionnaire from the IRS, they should immediately contact you so that you could help with its completion. They should not attempt to complete it on their own!!!

The IRS has already issued a special edition of Employee Plans News to provide an overview regarding the questionnaire. There is a link to the questionnaire in the Newsletter. The questionnaire is also known as IRS Form 14146.

For more on this subject come to either our Retirement Plan Insights or Practitioner seminars.