Good news: There’s a recently updated tool that offers specific tips on how to find, fix and avoid all types of common 401(k) mistakes before those issues turn into costly penalties and even lawsuits.
And following the steps outlined in this resource can help you avoid the wrath of the IRS. That’s because the tool, the 401(k) Plan Fix-It Guide, was created by that agency.
12 major mistakes
The Guide was updated by the agency to reflect changes to the IRS’ Employee Plans Compliance Resolution System (EPCRS).
The changes to the EPCRS took effect on January 1, 2017. The Fix-It Guide offers a table of 12 common plan mistakes, such as out-of-date plan documents, compensation errors, and participant loan failures.
Under each common mistake, the IRS links to detailed discussions on the issue that provide examples, explanations of available corrections and links to official IRS guidance.
On top of the EPCRS updates, the Fix-It Guide also includes info on new IRS guidance on determination letters and other revisions.
Important highlights
Some of the highlights of Fix-It Guide, courtesy of the folks at EBIA:
Safe harbors. The guide contains a chart comparing the features of the safe harbor designs under both a traditional safe harbor and qualified automatic contribution arrangement (QACA) safe harbor
Eligible Employee Exclusions. There’s a discussion about failures to allow eligible employees to make elective deferrals that includes a chart outlining the safe harbor corrections that allow a zero or a reduced qualified nonelective contribution (QNEC) to fix the issue.
This section also includes several new examples of when those correction methods could apply.
Participant Loan Mistakes. The loan section was revised to show when loans made to plan owners or officers could be prohibited transactions.
