Mistakes Happen

Mistakes Happen

April 14, 2023

When Plan Errors Occur, Reach For The 401(k) Plan Fix-It Guide

As a plan sponsor, at some point you are likely to discover that a plan failure or error has occurred — especially after the plan testing season concludes. Mistakes do happen and you won’t be alone. A recent report published by the American Society of Pension Professionals and Actuaries (ASPAA) studied over 3,200 small business plans1  and found that nearly half of them failed the top-heavy test.

A Blueprint for Fixing Mistakes

Whether it’s through a plan audit or some other review process, it can be stressful to learn that a failure has occurred and to figure out how to correct it. The good news is that these errors and failures are easily fixable, and without fees or penalties under the right circumstances. The 401(k)Plan Fix-it Guide, made available by the Internal Revenue Service (IRS), provides a blueprint to follow to help resolve errors to the agency’s satisfaction and avoid making the same mistake(s) in the future.

Common Mistakes Covered by the Guide

The top mistakes covered by the guide include the following:

  • Lack of updates to the plan document to reflect recent changes in the law
  • Failure to base plan operations on the plan document
  • Improperly defining compensation for deferrals and allocations
  • Employer-matching contributions were not made to all appropriate employees
  • Failure of 401(k) ADP and ACP nondiscrimination tests
  • Failure to provide eligible employees the opportunity to make an elective deferral
  • Elective deferrals were not limited to the amounts under Internal Revenue Code (IRC) Section 402(g) and excess deferrals were not distributed
  • Failure to timely deposit employee-elected deferrals
  • Participant loans fail to conform to the requirements of the plan document and IRC Section 72(p)
  • Hardship distributions were not made properly
  • Required contributions were not made to the plan
  • Not filing a Form 5500-series tax return this year

Click, Print and Keep Handy

Every year it’s important to review the requirements for operating your 401(k) retirement plan. Consider going old school and clicking on this IRS 401(k) plan checklist link and print it out to help you manage your compliance requirements with many of the important rules. The checklist includes examples of how to find, fix and avoid each mistake. It can also be accessed via: www.irs.gov/pub/irs-pdf/p4531.pdf.

SECURE Act 2.0 and Correcting Plan Errors

SECURE 2.0 delivered a few new rules regarding correcting plan errors related to overpayments to participants or beneficiaries; it also contains enhancements to the plan error self-correction program under the IRS’s Employee Plans Compliance Resolution System (EPCRS). These new rules and enhancements became effective as soon as SECURE 2.0 was signed into law late last year. For more details, consult this article: https://tinyurl.com/2wjwn8sm.


At Diversified Financial Advisors, we believe with the right plan design, we can create successful retirement outcomes for your business and employees.

We are happy to help, if you have any questions or would like additional insight, please feel free to reach out to me at joe@diversifiedfa.com or 800.307.0376.

1 “What Percentage of Plans Fail 401(k) Nondiscrimination Testing?” (January 20, 2022); https://tinyurl.com/fb6wfw7u.

Disclosure: This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. Investment Advice and 3(38) Investment Fiduciary services offered through Diversified Financial Advisors, LLC, a Registered Investment Advisor. 3(16) Administrative Fiduciary Services provided by PISTL Service Corporation. Discretionary Trustee services provided by Printing Industries 401k Trustees. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material. 

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