As an employer, you’re ultimately responsible for keeping your company’s 401(k) plan in compliance at all times. Your plan document should be reviewed on an annual basis and administered accordingly. The IRS offers useful tips for plan sponsors to help in those efforts. Here are some highlights on their guidance.
Understand and verify your adoption agreement options.For pre-approved plans, you may have an adoption agreement that supplements the basic plan document and lists features that may be selected. It’s important to understand this document and specifically what it says about plan eligibility, types and limits of contributions, how contributions are divided among plan participants, vesting and paying benefits.
Educate yourself about your service agreement. As a plan sponsor, it’s important to understand what your service agreement does and does not cover. For administrative tasks, it’s imperative to know who will perform these and to make sure that person has the information he or she needs in order to perform the following:
- Administer the terms for enrollment, contribution and distribution of funds.
- Give mandatory plan notices to participants.
- Determine any testing that’s required and carry it out in a timely manner.
- Perform all required record keeping properly.
- Review the plan document for any legal changes and make updates as needed.
Make all required filings to the IRS and Department of Labor.
Communicate with your pre-approved plan provider. Notify your provider if you make any changes with respect to your business, employees or compensation — or if you need to make changes to your plan’s terms. In addition, it’s important that you:
- Understand all fees that will be charged by the plan provider.
- Retain the IRS issued opinion or advisory letter for your pre-approved plan.
Promptly sign any plan amendments from your plan provider.
Maintain open communication with your plan service provider regarding the following. Advise your provider about anychanges in employee status, new hires, terminations and compensation as well as:
- Accurate census data for determining plan eligibility and benefit payments.
- Terms for defining employee contributions, payments and loans.
Any amendments to the plan (e.g., loan or hardship provisions, contributions or allocation formulas).
Stay on top of your plan maintenance requirements. Review all reports, including the allocation report for potential contribution errors and the distribution report to verify that participants have started their minimum required distributions and consented to these payments. Monitor that all loans are made in accordance with the terms of the plan, and that payments are made in a timely fashion. Document your actions with respect to defaulted loans and retain all documentation for hardship withdrawals. The IRS also recommends an independent review of your plan.
You can read the full document below, which has helpful links for IRS compliance resources, publications and other websites to help plan sponsors keep up with applicable rules and regulations.