Considerations for 401(k) Plans

The IRS issued Notice 2018-91 on November 21, 2018. The Notice lists the Required Amendments from 2018 for employer retirement plans. This is the third consecutive year that no statutory changes are required to be made to 401(k) Plan Documents. In fact, this year’s list shows no qualification changes for any type of retirement plan. While this may be a welcome gift to those tasked with keeping plan documents current with laws and IRS rules, it is important that employers who offer retirement plans do not misinterpret this guidance. If you made a change in certain practices, operations, or eligibility criteria, your plan may still require an amendment to match your operations.

This time presents a good opportunity to ensure your plan does not suffer from the compliance problems common to so many employer retirement plans. For example, the plan’s Summary Plan Description (SPD) must be given to each employee when the employee is eligible to participate in the plan. Form 5500, filed annually, must be summarized each year and the summary (Summary Annual Report) is to be distributed annually to participants. Plans with 100 or more participants must have an outside accounting firm audit the plan, and file the audit report along with Form 5500. Even good CPA firms too often miss basic compliance violations, which are easily discovered upon a thorough legal compliance review.

Moreover, legal compliance reviews often discover that the SPD contains certain provisions that conflict with the actual provisions of the plan, as written in the basic plan document, adoption agreement, or both. When was the last time you had all documents checked for consistency?  Additionally, employers are discovering that sometimes their documents are consistent; yet, the actual operation of the plan is not at all what the documents state. Either of these situations represent an Operational Compliance violation and put the plan at risk. The IRS may assess fines, penalties, and even consider plan disqualification when operational problems exist. Now and early 2019 present great opportunities to ensure legal compliance with your plan, documents, procedures, and operations. The key is to identify and correct the problems discovered, using one of the amnesty-type programs offered by the IRS and the Department of Labor.

Read the IRS release here.