The 401(k) Questionnaire Final Report - Next Steps

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I'm Monika Templeman, Director of Employee Plans Examinations.

And I want to share with you the next steps Employee Plans will take now that we've analyzed the final results from the 401(k) Compliance Check Questionnaire.

But first, some background information on our reasons for the 401(k) Compliance Questionnaire Project.

401(k) plans have become the most prevalent form of retirement plan in the United States.

There are currently more than 500,000 401(k) plans covering approximately 60 million Americans.

The 401(k) Compliance Check Project is a pivotal part of EP's 401(k) operating priority.

It's the result of a collaborative effort among all the functions in Employee Plans and TE/GE research.

We initiated this compliance check in order to measure the health of 401(k) plans in terms of compliance levels and risk factors.

We also wanted to better understand compliance issues impacting 401(k) plans, evaluate the effectiveness of voluntary compliance programs and tools, and determine how the IRS can best foster compliance.

We randomly selected 1,200 401(k) plan sponsors to complete the 401(k) Questionnaire via a secure Website.

This was the first online Compliance Check Questionnaire used by Tax Exempt and Governmental Entities, or TE/GE.

And 98% of plans receiving the Questionnaire responded.

We took follow-up actions on all our nonresponders.

In February of 2012, we released the Interim Report, which generalized our findings to the 401(k) plan sponsor population that files Form 5500.

This final report, however, includes everything from the Interim Report, plus additional results from the Questionnaire, including a new section on automatic contribution arrangements, stratified data highlighting differences in the results based on plan size, and updates to the data that was included in the Interim Report.

The stratified data was based on plan size, or the number of participants.

The four strata in the report includes small plans with zero to five participants, medium plans with 6 to 100 participants, large plans with 100 to 2,500 participants, and very large plans, with more than 2,500 participants.

The final report contains a lot of useful data and information.

I will refer to some of the results while discussing our next steps.

Please visit our Website to see the complete results from the Questionnaire.

Now that we have those results, we in Employee Plans will take our next steps to improve our focus on 401(k) plans.

For the past decade, Employee Plans Customer Education and Outreach, or CE&O, has provided a wealth of information through our Websites, brochures, and educational programs.

The Questionnaire results will assist CE&O in many ways.

First, CE&O can better target our message.

For example, we learned that the majority of plans that used the Fix-It Guide and our correction programs found these programs to be very helpful.

We were surprised to discover, though, that only 65% of plan sponsors are aware of our correction programs, known as EPCRS, or Employee Plans Compliance Resolution System, and only 41% are aware of the Fix-It Guide.

By analyzing which portion of the 401(k) universe is unfamiliar with these helpful tools, we can better target and improve our education and outreach.

CE&O can also provide information needed by plan sponsors to help them to keep their plans in compliance.

In their 2012 report, the Employee Plans members of the TE/GE Advisory Committee, known as the ACT, stressed the importance of good internal controls.

The report emphasized that strong internal controls are important for plans to remain compliant.

From its inception, EP encouraged all plan sponsors to use the Questionnaire as a self-audit tool, and we are very pleased that many are heeding this suggestion.

To improve the usefulness of the Questionnaire as a self-audit tool, we are adding additional questions about internal controls.

The revised Questionnaire will continue to be posted to EP's Website for all plan sponsors to use as a self-audit tool.

The results from the 401(k) Questionnaire are being used to improve guidance to the 401(k) community.

For example, based on the data, we continue to provide newsletter articles on areas of confusion and concern about 401(k) plans.

EP will continue to look for areas where guidance is needed to improve voluntary compliance and make it easier for plan sponsors to administer their 401(k) plans.

The responses to the open-ended Questionnaire questions provided suggestions for improving our EPCRS program.

We'll consider all suggestions as we make future revisions to EPCRS.

Some of the suggestions include offering self-correction compliance forms similar to those provided for voluntary correction submissions, expanding self-correction options through retroactive amendment, and expanding self-correction for significant failures.

Based on Questionnaire results, we will explore methods to improve our 401(k) examination activities.

This would include regular examinations and compliance-based examinations, such as our Learn, Educate, Self-Correct, Enforce program, known as LESE, and our EP Compliance Unit projects, from the EPCU.

These enforcement activities will be used to address specific areas of the 401(k) universe where potential areas of noncompliance have been identified.

We've largely used a risk-based targeted method to identify examinations.

This methodology selects plans based on plan type and industry type, based on historical examination activity and results, and has been very effective in identifying potential noncompliance.

We are currently developing procedures to improve the identification of 401(k) plans with potential issues and reduce the burden on compliant plan sponsors.

401(k) plan compliance will continue to be an EP operating priority in fiscal year 2013.

Our next steps are to use the findings from the Questionnaire data as a key component in our efforts to make sure that all plan sponsors have access to the most up-to-date information to help them with compliance.

It's a two-way street.

We want to measure how well 401(k) plans are operating and also determine how effectively we provide information to help keep these plans in compliance.