SLF LABOR AND EMPLOYMENT ALERT February 2007

IRS Provides Guidance on 401(k) Plans

The IRS has published a user friendly checklist for determining whether employers are operating 401(k) retirement plans in a proper fashion. The checklist contains 10 simple questions:

• Has your plan document been updated within the past few years to reflect recent law changes?
• Have you notified the people who service your plan of any plan changes?
• Is your plan’s operation based on the definitions and requirements (terms) written in your plan document?
• Were all eligible employees identified and given the opportunity to make an elective deferral election?
• Is the plan’s definition of compensation used for all deferrals and allocations?
• Have you timely deposited employee deferrals each pay period?
• Have you identified all your highly compensated employees including owners and key employees, including owners and their family members, so that your TPA can perform your nondiscrimination tests?
• Have the 401(k) nondiscrimination tests (ADP, ACP and Top Heavy) been performed counting all eligible employees?
• Have you filed a Form 5500 series return, and have you distributed a Summary Annual Report (SAR) to all plan participants this year?
• Are elective deferrals limited to the amounts under IRC 402(g) for the calendar year?

According to the IRS, if employers answer “no” to any of these questions, there may be a mistake in the operation of the plan.

The IRS 401(k) plan checklist with commentary is listed on the IRS’s website: www.irs.gov/ep.

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