IRS Publishes 401(k) Checklist for Plan Sponsors

February 23, 2007 ( - A checklist published by the Internal Revenue Service (IRS) can help plan sponsors comply with the myriad of laws and rules that govern operation of a 401(k) plan including: The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and annual deferral percentage (ADP) and average contribution percentage (ACP) tests.

While the IRS emphasizes in the document that plan sponsors should still consult with their plan provider and advisers, the list presents many of the major potential problem areas that can easily get plans into trouble.

Some of the other checklist points include:

  • Any changes made to plan documents or to the operation of the plan should be conveyed to employees, vendors and tax professionals who service the plan.
  • Everything plan sponsors need to know to operate the plan should be contained in the plan document, including how much and what compensation is used for allocations, for limitations, discrimination tests, etc.
  • Supplying third party administrators (TPAs) or plan service providers with information regarding all employees who receive a Form W-2 might reduce the risk that all eligible employees are not identified and are given the opportunity to make an elective deferral election.
  • Apply the proper definition of compensation in a consistent manner when dealing with deferrals and allocations.
  • Deposit deferrals as soon as they can be segregated from the employer’s assets. Most employers deposit salary deferrals when making payroll tax deposits.
  • Identify all highly compensated employees and key employees, including owners and their family members, so that the TPA can perform non-discrimination tests.

For the full IRS checklist visit