Yesterday’s Advisor began the Internal Revenue Service’s top 10 401(k) issues; today we hit the rest, again as featured on Compensation.BLR.com®.
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[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, at the end of the year the sum of these amounts may not comply with the terms of the plan.
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 (i) limitations for each employee, (ii) limitations based on the calendar year, and (iii) 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. In order 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).
Is your 409A Plan compliant? Find out Thursday, November 20, with a new interactive webinar, Nonqualified Deferred Compensation: How to Keep Your Plans in Compliance with Section 409A Requirements. Learn More
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.
While checking on your 401(k), how about checking on your 409A deferred compensation?
The IRS recently announced a new compliance initiative to make sure deferred compensation plans’ initial and subsequent deferral elections—and payouts— comply with Section 409A requirements. Now is the time to review your own plans and ensure they are in compliance with IRS requirements.
This new compliance initiative could have far-reaching implications for employers large, medium, and small, because the IRS is likely to use the information it gathers to identify the most common ways employers fail to comply with Section 409A requirements.
Don’t wait for the IRS to show you where your plans are noncompliant with Section 409A. Join us for an in-depth webinar on Thursday, November 20, when our presenter, a seasoned employee benefits attorney, will explain what this IRS initiative is all about and how to audit your plans to ensure compliance.
In just 90 minutes, you’ll get the Nonqualified Deferred Compensation: How to Keep Your Plans in Compliance with Section 409A Requirements. Learn what the IRS’ Section 409A Compliance Initiative Project is all about and how to review your plans to ensure that your plans aren’t a potential liability.
Register today for this interactive webinar or find out more.
Deferred comp? Join us Thursday, November 20, for a new interactive webinar, Nonqualified Deferred Compensation: How to Keep Your Plans in Compliance with Section 409A Requirements. Earn 1.5 hours in HRCI Recertification Credit. Register Now
By participating in this interactive webinar, you’ll learn:
- Which plans and arrangements are subject to Section 409A and how to ensure yours meet the requirements
- Details on the IRS’ Section 409A compliance initiative project, including the types of programs that could be subject to review
- Nonqualified deferred compensation plan self-audit essentials to avoid a liability under section 409A
- Tips on fixing problems using the IRS’ Voluntary Correction Program
- Why the timing of a self-audit is so important for using the voluntary program
- The types of penalties that might apply if Section 409A violations are uncovered
Register now for this event risk-free.
Thursday, November 20, 2014
1:30 p.m. to 3:00 p.m. (Eastern)
12:30 p.m. to 2:00 p.m. (Central)
11:30 a.m. to 1:00 p.m. (Mountain)
10:30 a.m. to 12:00 p.m. (Pacific)
Approved for Recertification Credit
This program has been approved for 1.5 credit hours toward recertification through the Human Resource Certification Institute (HRCI).
Join us on Thursday, November 20—you’ll get the in-depth Nonqualified Deferred Compensation: How to Keep Your Plans in Compliance with Section 409A Requirements webinar AND you’ll get all of your particular questions answered by our experts.
Train Your Entire Staff
As with all BLR®/HR Hero® webinars:
- Train all the staff you can fit around a conference phone.
- Get your (and their) specific phoned-in or e-mailed questions answered in Q&A sessions that follow the presentation.
It’s worth remembering that many of these errors can lead to plan disqualification and, in turn, negative tax consequences for both employees and the employer.