Mistake Find the Mistake Fix the Mistake Avoid the Mistake 1. You haven't updated your plan document within the past few years to reflect recent law changes. For older items, review the annual cumulative list to see if the plan has all required law changes. Starting in 2016 review the annual required amendments list. Adopt amendments for missed law changes. If you missed the deadline to adopt an amendment you may need to use the IRS correction program. Use a calendar that notes when you must complete amendments. Review your plan document annually. Maintain regular contact with the company that sold you the plan. 2. You didn't base the plan operations on the terms of the plan document . Failure to follow plan terms is a very common mistake. Conduct an independent review of the plan document provisions compared to its operation. Apply reasonable correction method that would place affected participants in the position they would've been in if there were no operational plan defects. Develop a communication mechanism to make all relevant parties aware of changes on a timely and accurate basis (best practices). Perform a review at least annually to ensure that you're following plan terms. 3. You didn't use the plan definition of compensation correctly for all deferrals and allocations. Review the plan document definition of compensation used for determining elective deferrals, employer nonelective and matching contributions, maximum annual additions and top-heavy minimum contributions. Review the plan election forms to determine if they're consistent with plan terms. Corrective contribution, reallocation or distribution. Perform annual reviews of compensation definitions and ensure that the person in charge of determining compensation is properly trained to understand the plan document. 4. Employer matching contributions weren't made to all appropriate employees. Review the plan document to determine the employee eligibility requirements and matching contribution formula. Compare it to what's used in operation. Apply a reasonable correction method that would put affected participants in the same position they would've been in if matching contributions were made to eligible employees according to plan terms. Contact plan administrators to ensure that they have adequate employment and payroll records to make calculations. 5. The plan failed the 401(k) ADP and ACP nondiscrimination tests. Conduct an independent review to determine if highly and nonhighly employees are properly classified. Make qualified nonelective contributions for the nonhighly compensated employees. Consider a safe harbor or automatic enrollment plan design. Communicate with plan administrators to ensure proper employee classification and compliance with the plan terms. 6. Eligible employees weren't given the opportunity to make an elective deferral (exclusion of eligible employees). Review the plan document sections on eligibility and participation. Check with plan administrators to determine when employees are entering the plan. Make a qualified nonelective contribution for the employee that compensates for the missed deferral opportunity. Monitor census information and apply participation requirements. 7. Elective deferrals weren't limited to the amounts under IRC Section 402(g) for the calendar year and excess deferrals weren't distributed. Inspect deferral amounts for plan participants to ensure that the employee hasn't exceeded the limits. Distribute excess deferrals. Work with plan administrators to ensure that they have sufficient payroll information to verify the deferral limitations of IRC Section 402(g) were satisfied. 8. You haven't timely deposited employee elective deferrals. Determine the earliest date you can segregate deferrals from general assets. Compare that date with the actual deposit date and any plan document requirements. Usually corrected through DOL's Voluntary Fiduciary Correction Program. You may also need to correct through the IRS correction program. Deposit all elective deferrals withheld and earnings resulting from the late deposit into the plan's trust. Coordinate with your payroll provider to determine the earliest date you can reasonably segregate the deferral deposits from general assets. Set up procedures to ensure that you make deposits by that date. 9. Participant loans don't conform to the requirements of IRC Section 72(p) or are prohibited transactions under IRC Section 4975. If the plan document permits participant loans, review all outstanding loans to ensure that the loans comply with IRC Section 72(p) and that employees are repaying their loans timely. For loans made to owners or officers of the employer, verify that such loans qualify for the exemption from prohibited transactions. You may correct some mistakes by corrective repayment and/or modification of loan terms. Review each participant loan, including the loan amount, term of the loan and repayment terms. Ensure that there are procedures in place to prevent loans that are prohibited transactions under IRC Section 4975 or that don't comply with IRC Section 72(p). 10. Hardship distributions weren't made properly. Review all in-service distributions and determine whether hardship distributions met the plan requirements. Amend plan retroactively to allow for hardship distributions. If impermissible hardship distribution, have participant return hardship distribution amount plus earnings. Be familiar with your plan document's hardship provisions and ensure that you follow the provisions in operation. Ensure that your plan administrators and payroll offices share the plan's hardship distribution information. 11. The plan was top-heavy and the required minimum contributions weren't made to the plan. Review the rules and definitions for top-heavy in your plan document. Determine whether your plan is top-heavy for the plan year. Properly contribute and allocate the required top-heavy minimum, adjusted for earnings, to the affected non-key employees. Perform a top-heavy test each year. 12. You haven't filed a Form 5500-series return this year. Find your signed copy of the return and determine if you filed it timely. File all delinquent returns. Understand your filing requirement and know who filed and when. Don't assume someone else is taking care of it. 401(k) Plan Overview EPCRS Overview 401(k) Plan Checklist PDF Additional resources
