IMHO: "Wrong" Headed?—Part 2

As I mentioned then, this is a compilation based on my experience, the experiences of a group of experts who conducted a panel by the same title at the PLANSPONSOR National Conference in June, and a list of “Common Plan Mistakes” from none other than the Internal Revenue Service itself.  

Here’s the rest of the list:  

6. Not providing required notices to participants (e.g., safe harbor notices or QDIA notices).  

The law provides plan fiduciaries with certain protections conditioned on the timely provision of notices deemed sufficient to alert participants to their rights and the obligations of the plan fiduciaries.  This holds true with so-called “safe harbor” plan designs as well as the selection of qualified default investment alternatives (QDIAs), or the implementation of automatic enrollment, where the participant could opt out of deferrals, select a different deferral amount, or select another investment option.  

While the implications of failing to provide a timely notice vary depending on the purpose of the notice, generally speaking, a failure to provide the notice invalidates the protections afforded the fiduciary.  

7. Failing to obtain spousal consent.  

The IRS notes that a common plan mistake submitted for correction under the Voluntary Correction Program (VCP) is the distribution to a participant of a benefit in a form other than the required QJSA (e.g., a single lump sum) without securing proper consent from the spouse. This often happens when the sponsor’s human resources accounting system incorrectly classifies a participant as not married (or when the participant was not married at one point and subsequently got married—or remarried).  The failure to provide proper spousal consent is an operational qualification mistake that would cause the plan to lose its tax-qualified status.