IRS Releases Results of 401k Compliance Report
The IRS has recently released the findings its 401(k) Compliance Check Questionnaire Interim Report which works to give the federal agency a better understanding of why 401(k) non-compliance exists and how to improve future compliance efforts.
The report focuses on a large random sample of employers who file a Form 5500, Annual Return/Report of Employee Benefit Plan. The report collects information on plan demographics, employee participation, employer and employee contributions, top-heavy and nondiscrimination testing, distributions and plan loans, plan administration procedures and other data germane to the topic.
The questionnaire was sent to 1,200 plan sponsors and found that some of the most common features include:
• Catch-up contributions (offered by 96 percent of plans)
• Direct rollover distributions (79 percent)
• Hardship withdrawals (76 percent)
• Matching contributions (68 percent)
• Non-elective profit-sharing contributions (65 percent)
• Employee loans (65 percent)
• Age requirement mandating that participants be at least 21 years of age (64 percent), and
• Requirement that employees be on the job for at least 12 months before given the option to join the plan (54 percent).
A handful of other plan design features offered in a significant minority of 401(k) plans include:
• Ability for participants to change deferrals at any time (41 percent)
• A Roth option (22 percent)
• No age requirement for sign up (20 percent), and
• No minimum service requirement (13 percent).
The report also found that third-party administrators were used by 53 percent of survey participants.