Benefits and Compensation

IRS Releases 401(k) Compliance Check Survey Results

There are more than half a million 401(k) plans in the United States, covering 60 million Americans, says the IRS. That is just some of the information in the 401(k) Compliance Check Questionnaire Interim Report, which the IRS released on Feb. 16, 2012. The report summarizes survey responses from 401(k) plan sponsors that filed a Form 5500 for the 2006 through 2008 plan years. The IRS randomly selected 1,200 plan sponsors to respond; with a 98 percent response rate, roughly 1,176 took part in the survey.

The questionnaire was part of the service’s Employee Plans 401(k) operating policy to: 

  • measure the health of section 401(k) plans;
  • better understand compliance issues impacting section 401(k) plans;
  • evaluate the effectiveness of voluntary compliance programs and tools; and
  • determine how the IRS can best foster compliance.

Areas the questionnaire focused on were demographics, plan participation, contributions (both employee and employer), designated Roth features, distributions, top-heavy and nondiscrimination testing, correction programs and plan administration. 

Some of the responses hinted at the economic downturn that during the years studied was right around the corner. According to the questionnaire, 15 percent of responding plans experienced a suspension, reduction or discontinuation of matching or nonelective contributions in the last four years before answering the survey.

Between 2006 and 2008, the percentage of 401(k) plan sponsors that suspended or discontinued matching or nonelective contributions increased from 1 to 4 percent (matching) and from 2 to 5 percent (nonelective). Also, 76 percent of respondents allow hardship distributions and 65 percent allow participant loans (although there were no figures for the percentage of participants taking them up on these offers). 

The IRS stated it will use the results of the questionnaire to:

  • modify and improve its 401(k) plan compliance tools;
  • produce outreach materials;
  • improve voluntary compliance programs;
  • assess the need for additional guidance; and
  • define upcoming projects and enforcement activities.

The IRS is preparing a final report that will include comparisons between four different sizes of 401(k) plans: 0-5 participants; 6-100 participants; 101-2,500 participants; and more than 2,500 participants. It expects the final report, which will include additional information not included in the interim report, will be released in December 2012.

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