When was your 401(k) plan last amended or restated? Were there any processes that needed to be implemented or changed as a result? Have these processes been communicated to the employees involved with servicing your plan? Most plans rely heavily on their third-party administrators to ensure their plans are in compliance with ERISA and their plan documents; however, since plan sponsors ultimately bear the fiduciary responsibility, these are important questions that plan administrators should ask themselves. Perhaps the most important question to ask is whether or not the controls and processes currently in place will prevent and / or identify any possible violations of the plan document.
For example, does your plan census appropriately reflect compensation per the definition of compensation in the plan document? In other words, is your third-party administrator performing compliance testing based on accurate data? If your plan document allows for automatic distributions to terminated participants, are they being reviewed by an administrator to ensure these distributions are being made in accordance with the plan document? If your plan utilizes automatic enrollment, are there processes in place to track that all new employees were enrolled or opted out within the time period defined in the plan document?
If you have not recently done so, it is good practice for plan administrators to meet with all employees involved with servicing their plans to perform a thorough review of the plan document in order to ensure everybody has a clear understanding of plan provisions. These meetings should also include a detailed review of the controls and processes in place and whether or not they are adequate enough to prevent any possible violations of the plan document.
If you found that you have not operated your plan in accordance with your plan document the IRS has several methods for correcting these operational failures some of which do not include contacting the IRS. However, before you can correct the error, you have to determine if you have one.