IMHO: Compliance 'Deportment'

Recently, the Internal Revenue Service (IRS) announced that it was sending a questionnaire out to about a thousand 401(k) plan sponsors. 

The IRS said it developed the questionnaire because of the “critical role 401(k) plans play in our private retirement system” (see “IRS Provides 401(k) Questionnaire Details).

Make no mistake: It’s going to take some effort to respond to the questionnaire—and respond you must.  Described as a “compliance check,” the IRS notes that “failure to complete the Questionnaire will result in further enforcement action.”  So, what does the IRS want to know?

Well, there’s a lot of information to be gathered about the plan from plan years going back to 2006: the number of employees, participants, their deferral levels, eligibility standards, service and age requirements, the existence and administration of loans and hardship withdrawals, the results of nondiscrimination tests, the determination of top-heavy status, the level(s) of match, and any changes to those levels.

The more interesting part of the questionnaire, IMHO, is the other questions the IRS asks; things like, Have recent financial conditions led to an uptick in hardships and loans? Does the plan allow for Roth contributions (and how many participants have opted for that feature)? Can participants use a debit card to take a loan? And, for plans that embraced automatic enrollment, did they do so retroactively or prospectively?  And I’m curious not only about what plan sponsors have to say about the impact of factors like age, compensation, matching levels, and plan communications on participation levels—but what the IRS might do with that information.

There are, however, some areas that seem a bit like a baited trap: questions about if notices are provided timely, if excess deferral contributions were returned within the legal timeframes, even if the respondent as a SIMPLE plan exceeded the contribution limits.      

And, make no mistake, this is a prelude to something deeper.  In unveiling the project, the IRS noted that its Employee Plans Examinations previously conducted a baseline study of 79 market segments, and “the findings indicated that 401(k) plans are by far the most non-compliant plan type in the retirement plan universe,” going on to note that “since these plans make up over 60% of the retirement plan universe, it is important to the future of the private retirement system that these plans maintain the highest level of compliance possible.”

What will the IRS do with the information?  It says that it will “ultimately result in a report published by the IRS describing the responses and identifying those areas where additional education, guidance, and outreach is needed”—and, perhaps somewhat more ominously, help the IRS focus its enforcement efforts “to address and/or avoid non-compliance related to these plans.”

All in all, I wish the IRS questionnaire wasn’t quite so long, complicated, and—for lack of a better word—intimidating.  For plan sponsors, I’m sure it’s going to wind up being one more thing that has to be done when they already don’t have enough hours in the day—and one that could serve to plant a big red flag on their plan, to boot. 

Here’s hoping that some good comes out of it—that the IRS does indeed discover some areas in which they can help plan sponsors do a better job of keeping these important programs in compliance—and that, perhaps, it will find that the programs are in better shape than they seem to think they are.


More information is at,,id=223440,00.html

A version of the online questionnaire is online at