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Take Stock of Plan Compliance on the Cusp of the New Year

Regulatory Compliance

Fast away the old year passes! There are plenty of things to occupy an employer, a plan administrator, and a service provider’s time as the year comes to a close — and the IRS offers suggestions regarding year-end considerations concerning a retirement plan.

Such a resource is especially helpful for calendar-year plans. But all plans — not just calendar-year plans — need to stay in compliance with laws and regulations, and these considerations could help in making sure that a plan does not run afoul of them.

The Plan Document

Has your plan document been updated within the past few years? If a plan hasn’t been updated to reflect recent law changes, it should be revised.

Are the plan operations based on the plan document terms? Failure to follow the terms of the plan is a common problem the IRS finds on examination.

Is the plan’s definition of compensation for all deferrals and allocations used correctly? The IRS notes that a plan may use different definitions of compensation for different purposes, and that it is important that the proper definition found in the plan document be applied.


Were top-heavy minimum contributions made? If the plan is top-heavy, minimum contributions for non-key employees must be made.

Were employer matching contributions made to appropriate employees under the plan terms? The plan terms must be followed when allocating employer matching contributions.

Nondiscrimination Testing

Most 401(k) plans must satisfy yearly ADP/ACP nondiscrimination tests. Has the plan done so?

Elective Deferrals

Were all eligible employees identified and given the opportunity to make an elective deferral? The IRS offers a hint that supplying a service provider with information on all employees who receive a Form W-2 can help reduce the risk of omitting eligible employees.

Are elective deferrals limited to the Internal Revenue Code Section 402(g) limits for the calendar year? Failure to distribute deferrals in excess of the 402(g) limit may result in the participant and the employer having to pay additional taxes and penalties, the IRS warned.

Have you timely deposited employee elective deferrals? You should deposit deferrals as soon as they can be segregated from the employer’s assets.

Loans and Distributions

Do participant loans meet the plan document and Internal Revenue Code Section 72(p) requirements? Defaulted loans or loans that violate Section 72(p) may be treated as a taxable distribution to the participant, the IRS reminds.

Were hardship distributions made properly? The plan terms must be followed if they allow hardship distributions.


Was Form 5500 filed? Most 401(k) plans must file an annual return with the federal government.

A Caveat

The IRS reminds that reviewing the requirements for plan operation annually is a useful function for those that operate retirement plans. They add that their suggestions are “only a guide,” and that even meeting all these suggestions does not guarantee that a plan is necessarily fully in compliance. “This list doesn’t contain all plan requirements and shouldn’t be used as a substitute for a complete plan review,” they caution.