California HR

401(k) Challenges—Audit Focus for the IRS

401(k) Challenges—Audit Focus for the IRS

Yesterday’s CED began the Internal Revenue Service’s top 10 401(k) issues; today we hit the rest.
[Go here for issues 1 through 6.]

7. Incorrect employer-matching contributions. Employers are failing to contribute the employer-matching contribution provided for under the terms of the plan document. In many cases, the problem is caused by the employer’s and/or plan administrator’s failure to properly count hours of service or identify plan entry dates for employees. Incorrect contributions are also made when the employer and/or plan administrator fails to follow the terms of the plan document.

A common problem is the failure to use the definition of “compensation” described in the plan document. For example, the sponsor or administrator may not add deferrals back into compensation as required under the plan document when calculating the matching contribution.

Another problem has to do with the timing of matching contributions. The terms of a plan usually state that employer-matching contributions will be a percentage of participant deferrals, up to a specified level. Plans generally describe these matching contributions in terms of annual amounts and percentages. If the plan administrator calculates the matching contribution on a payroll basis, rather than on an annual basis, the sum of these amounts may not comply with the terms of the plan at the end of the year.

8. Deferrals in excess of IRC Sec. 402(g) limits. Employers are improperly allowing employees to defer compensation amounts in excess of the IRC Sec. 402(g) dollar limitations. Common causes include the failure to monitor (1) limitations for each employee, (2) limitations based on the calendar year, and (3) employees who transfer between divisions/plans of the same employer. In some cases, the employer is not aware that these limits apply to the participant rather than to the plan. The employer establishes multiple plans and allows the participant to defer the maximum amount under each plan. In other cases, the plan year is not the calendar year, and deferrals are made based on plan year compensation.

9. Failure to provide the safe-harbor plan notice on time. Plan sponsors are failing to timely provide the required notice for safe-harbor plans. To satisfy the ADP safe-harbor requirements, plan sponsors are required to provide participants with timely notice of the safe-harbor provisions. The timing requirement requires that the plan sponsor must provide notice within a reasonable period before each year. This requirement is deemed to be satisfied if the notice is given to each eligible employee at least 30 days, and not more than 90 days, before the beginning of each plan year (with special rules for employees who become eligible after such 90th day).


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10. Failure to meet hardship distribution requirements. In 401(k) plans that offer participant loans and hardship distributions, plan administrators are allowing hardship distributions to participants who elect not to take out a plan loan to satisfy the hardship. This fails to satisfy the hardship distribution rules that provide that a hardship distribution may not be made to the extent that the need may be satisfied from other resources that are reasonably available to the employee.

Another hardship distribution problem involves employers that fail to suspend salary deferrals for participants who receive hardship distributions from their accounts.

For more information, consult the IRS  here.

It’s Complicated …

Benefits, overtime, and a host of picky other issues. Wage and hour is just never as simple as we wish it were—particularly here in California, where there’s a complex overlay of state laws and rules on top of the federal FLSA (nearly all of them even more employee-friendly).

We think the best weapon out there for California employers is the newly updated 2015 edition of our HR Management & Compliance Report How To Comply with California Wage & Hour Law.

This information-packed guide, written by an experienced California employment lawyer, features in-depth coverage of all the topics you need to know about in an easy-read, quick-reference style:

  • The California Labor Code vs. the federal Fair Labor Standards Act (FLSA)
  • Who the California wage/hour laws apply to
  • The Wage Orders that cover your organization
  • Hours of work—including travel time, make-up time, meal and rest periods, and the definition of “hours worked”
  • The rules for hourly, salary, and piece-rate pay
  • Bonuses, profit-sharing plans, and tips
  • Overtime and double-time wages
  • Alternative workweeks
  • Tools and equipment, uniforms, and work-related expenses and losses
  • Paid time off—vacation, PTO, holidays, and sick leave
  • Unpaid time off
  • When and how employees must be paid
  • Payment of final wages upon termination
  • Deductions from pay
  • Recordkeeping requirements
  • Pay-related discrimination
  • A new appendix of key cases you need to know about
  • And much more!

New for the 2015 edition:

  • Helpful guidance on determining the difference between employees and independent contractors
  • Recent and upcoming minimum wage increases and their effect on exempt employees
  • The NLRB’s decision on franchisor liability for wage and hour claims brought by a franchisee’s employees
  • How to comply with California’s “recovery period” policy and training requirements
  • New authority for the Labor Commissioner to seek liquidated damages
  • Additional penalties for employers that engage in “unfair immigration-related practices”
  • Criminal penalties for employers that fail to remit employee pay withholdings
  • And more!

Order your copy now, and try it out risk-free for 30 days. If you’re dissatisfied in any way, just return it within 30 days for a full refund.

Now’s the perfect time to get yourself prepared for 2015. Order your copy of the newly updated edition of How To Comply with California Wage & Hour Law today.

Download your copy of Paying Overtime on Bonuses: A Calculation Guide today!