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IRS Initiates Focused Audit Program of Safe Harbor 401(k) Plans

IRS has announced that it is conducting a focused examination project targeting sponsors of safe harbor Internal Revenue Code section 401(k) plans.  The project was announced by Marcia Templeman, IRS director of employee plans examinations, on March 1 and will primarily look at  whether safe harbor 401(k) plan sponsors have been making required plan contributions and satisfied the safe harbor nondiscrimination requirements. In addition, field agents may look at whether the plan document is qualified in form and the trust’s investments.

The IRS will be examining 2010 Form 5500 filings in connection with this project.  Presumably examination letters have been sent out or will be sent out to plans selected for examination shortly.

As a reminder, employers sponsoring safe harbor 401(k) plans are required to make a matching contribution or nonelective (profit sharing) contribution each year.  The related plan document must specify which type of contribution will be made and plan participants must be notified at least 30 days prior to the beginning of each plan year that the plan will be making such contributions and prior to becoming eligible to participate in the plan.
 

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