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Posted by Bernard Kaplan on Thu, Jun 5, 2014 @ 09:12 AM

IRSIRS Sending Employers with Retirement Plans Containing the Roth Feature Questionnaires Seeking Information on Noncompliance Issues

The IRS Employee Plans Compliance Unit has recently launched a Roth Compliance Check Questionnaire Program aimed at helping the IRS understand compliance related to the Roth deferral provision in 401(k) plans. It is intended to verify whether the plans randomly selected comply with the Code as it relates to the Roth provisions, as well as identify any noncompliance issues. If noncompliance is discovered, the IRS may launch a plan audit or advise the employer to seek voluntary correction through the IRS.

It is important to respond to the questionnaire in a timely and accurate manner. Failure to do so could trigger an audit.

About the Compliance Check

A 401(k) plan may provide pre-tax salary deferrals or after-tax salary deferrals referred to as Roth contributions. The Roth contributions and earnings thereon are not subject to income tax when distributed. The IRS recently completed similar questionnaire programs for 401(k) plans, 403(b) plans and 457 plans. In its Section 401(k) Compliance Check Questionnaire program, the IRS contacted about 1,200 401(k) plan sponsors, of which 98 percent responded. The IRS then audited the two percent that did not respond. It is likely that the IRS will follow a similar game plan for this compliance check.

Based on this process, it is clear that the IRS does not consider participation in any compliance check questionnaire voluntary. According to the IRS, “We will not inspect your books and records to determine a filing liability for a particular tax period. If you don’t respond, however, we may need to take other measures to ensure compliance, including an audit of your plan or organization.”

Proceed With Caution

Employers sponsoring plans with a Roth feature should consider conducting a self audit of their plan in light of this latest IRS compliance initiative to be certain that the plan is written and operating in compliance with the law. It is advisable for employers selected to participate in this latest compliance check to seek assistance from an ERISA expert when completing the questionnaire. Answering questions incorrectly that appear to be simple could result in an IRS audit.

We Can Help

If you are selected to participate in the IRS Roth compliance check or if you would like your plan reviewed for compliance, you may contact us here


KaplanBernie Kaplan is a Managing Director of the Retirement Plan Services Group in the Boston office. He can be reached at 617.761.0541 or Bernie consults on a wide variety of employee benefit topics including 401(k) and 403(b) plans, qualified retirement plans, executive compensation, nonqualified deferred compensation, section 409A and health care reform.

Tags: IRS, Bernard Kaplan, 401(k), noncompliance

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