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401(k) Plan Fix-It Guide

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Potential Mistake	Find the Mistake	Fix the Mistake	Avoid the Mistake
1) You have not updated your plan document within the past few years to reflect recent law changes. (More)	Review annual cumulative list to see if plan has all required law changes (see Notice 2011-97).	Adopt amendments for missed law changes A streamlined application is available. See Appendix F and schedules 1 and 2 of Revenue Procedure 2008-50.	Use a calendar (tickler) that notes when you must complete amendments. Review your plan document annually. Maintain regular contact with the company that sold you the plan.
2) You did not base the plan’s operations on the terms of the plan document. Failure to follow plan terms is a very common mistake. (More)	Independent review of plan and its operation.	Apply reasonable correction method that would place affected participants in the position they would have been if there were no operational plan defects.	Develop a communication mechanism to make all relevant parties aware of changes on a timely and accurate basis (best practices). Perform a review at least annually to ensure that you are following plan terms.
3) You did not use the plan’s definition of compensation correctly for all deferrals and allocations. (More)	Review the plan document.	Corrective contribution or distribution.	Perform annual reviews of compensation definitions and ensure that the person in charge of determining compensation is properly trained to understand the plan document.
4) Employer matching contributions were not made to all appropriate employees. (More)	Review the plan document to determine the correct matching contribution formula and compare it to what is used in operation.	Apply reasonable correction method that would place affected participants in the position they would have been if there were no operational plan defects.	Contact plan administrators to ensure that they have adequate employment and payroll records to make calculations.
5) The plan failed the 401(k) ADP and ACP nondiscrimination tests. (More)	Independent review to determine if highly and nonhighly employees are properly classified.	Make qualified nonelective contributions for the nonhighly compensated employees.	Consider a safe harbor plan. Communicate with plan administrators to ensure proper employee classification and compliance with the plan’s terms.
6) Eligible employees were not given the opportunity to make an elective deferral election (exclusion of eligible employees). (More)	Review plan document sections on eligibility and participation. Check with plan administrators to find out when employees are entering the plan.	Make a qualified nonelective contribution for the employee that compensates for the missed deferral opportunity.	Monitor census information and apply participation requirements.
7) Elective deferrals were not limited to the amounts under Code section 402(g) for the calendar year and excess deferrals were not distributed. (More)	Inspect deferral amounts for plan participants to ensure that the employee has not exceeded the limits.	Distribute excess deferrals.	Work with plan administrators to ensure that they have sufficient payroll information to verify the deferral limitations of section 402(g) were satisfied.
8) You have not timely deposited employee elective deferrals. (More)	Determine the earliest date you can segregate deferrals from general assets; compare that date with the actual deposit dates and any plan document requirements.	Usually the Department of Labor through their Voluntary Fiduciary Correction Program for prohibited transaction. May also be through the IRS correction program. Deposit into the plan’s trust all elective deferrals withheld and earnings resulting from the late deposit.	Coordinate with payroll provider to determine the earliest date you can reasonably segregate the deferral deposits from general assets. Set up procedures to ensure that you make deposits by that date.
9) Participant loans do not conform to the requirements of the plan document and Code section 72(p). (More)	Review the plan document and all outstanding loans to ensure the loans comply with the plan’s terms and that employees are repaying their loans timely.	You may correct some failures by corrective repayment and/or modification of loan terms.	Review and follow the plan provisions relating to making loans, including the amount of loan, term of the loan and repayment terms. Make sure there are procedures in place to prevent loans that are prohibited transactions.
10) Hardship distributions were not made properly. (More)	Review all in-service distributions and determine that hardship distributions met the plan requirements.	Amend plan retroactively to allow for hardship distributions. If impermissible hardship distribution, have participant return hardship distribution amount plus earnings.	Be familiar with your plan document’s hardship provisions. Implement procedures to ensure that you follow the provisions in operation. Ensure that your plan administrators and payroll offices share the plan’s hardship distribution information.
11) The plan was top-heavy and the required minimum contributions were not made to the plan. (More)	Review the rules and definitions for top-heavy found in your plan document. Make a determination whether your plan is top-heavy for each plan year.	Properly contribute and allocate the required top-heavy minimum, adjusted for earnings, to the affected non-key employees.	Perform a top-heavy test each year.
12) You have not filed a Form 5500-series return and you have not distributed a Summary Annual Report to all plan participants this year. (More)	Find your signed copy of the return and determine if you filed it timely.	File all delinquent returns.	Understand your filing requirement and know who filed and when. Don’t assume someone is taking care of it for you. See 401(k) Resource Guide - Plan Sponsors - Filing Requirement

401(k) Plan Overview
EPCRS Overview
401(k) Plan Fix-It Guide (pdf)
401(k) Plan Checklist
Additional Resources

IRS.gov / Retirement Plans / Correcting Plan Errors / Fix-It Guides / 401(k) Plan Fix-It Guide

Page Last Reviewed or Updated: 2012-08-04