Top 10 IRS Qualification Failures
The employee benefit plan audit season is underway once again. The K Financial team started fieldwork on several of our 401(k) plan audits in April and will be at client sites working on plan audits through August.
The IRS has increased its budget for 401k plan examinations and hired many new examiners over the past year, so this is a good opportunity for plan sponsors to review the Top 10 Qualification Failures from Recent IRS Exams. Understanding what could go wrong is half the battle and will give you an opportunity to put processes and controls in place to ensure your plan maintains its qualified status and avoids the issues that the IRS is looking for. The top 10 qualification failures are as follows:
- Failure to properly amend the plan
- Failure to follow plan definition of compensation
- Failure to include eligible employees or failure to exclude ineligible employees
- Failure to properly calculate matching contributions
- Failure to satisfy loan provisions
- Impermissible in-service withdrawals
- Failure to satisfy minimum distribution rules
- Failure to pass ADP/ACP nondiscrimination tests
- Failure to properly provide top heavy contributions
- Exceeding annual contribution limits
If you have questions about any of the failures listed above or suspect that your plan might have issues, give K Financial a call and we can help. We will be presenting a tip sheet on our web site in May on how to prevent qualification failures.