In an article for the Tennessee CPA Journal, Bass, Berry & Sims attorneys David Thornton and Will Gebo outline common 401(k) plan errors and how to stay compliant with the myriad sources governing compliance with qualified retirement plans. In the article, the authors summarize the voluntary correction programs administered by the Internal Revenue Service (IRS) and the Department of Labor (DOL), identify the most common 401(k) plan errors and outline the corresponding correction methods, and recommend best practices to help safeguard against the occurrence of future plan errors.
As David and Will explain, “typical 401(k) plans fall under the regulatory authority of both the IRS and the DOL. Both agencies have established programs to encourage plan sponsors and administrators to make voluntary and timely corrections of common plan errors.” The IRS has the Employee Plans Compliance Resolution System (EPCRS) and the DOL has the Voluntary Fiduciary Correction Program (VFCP) and the Delinquent Filer Voluntary Compliance (DFVC) program to remedy plan errors. In the article, the authors examine the following common errors and ways to fix these mistakes:
- Failure to provide eligible employees the opportunity to make deferrals.
- Failure to apply the correct definition of compensation.
- Failure to timely remit funds to participant accounts.
- Failure to pass actual deferral percentage or actual contribution percentage nondiscrimination testing.
- Failure to file Form 5500.
To best prevent future plan errors, the attorneys recommend that “plan sponsors and fiduciaries include an annual self-audit, performed with the intention of identifying” any errors discussed in the article.
The full article, “Mistakes Happen: Common 401(k) Plan Errors and How to Fix Them,” was published in the May/June 2023 issue of the Tennessee CPA Journal and is available online.