The IRS recently sent out an advisory that covers the most "common plan mistakes" found in 401(k) audits. These mistakes were found by the IRS Employee Plans Team Audits program and center mostly on errors in determining which employees are eligible and what income is eligible for a plan. Consequences for plan sponsors can include expensive penalties.

Here are some of the most common mistakes the auditors found:

• Not amending the plan document for tax law changes by the end of the period required by law. This can lead to penalties, up to and including plan disqualification. An annual review of plan documents is the appropriate preventative action.

• Not applying matching formulas properly and as stated in the plan document.

• Errors in how employers create gaps between how highly compensated employees compare to other employees.

• Not following the terms of the automatic enrollment language under the terms of the plan and/or the Pension Protection Act of 2006.

The program centered on retirement plans with more than 2,500 participants, though the problems identified can affect employers of all sizes.

The IRS' findings serve as a sobering reminder to plan sponsors of the need to conduct annual self-audits to identify and correct problems that would only be exacerbated by an audit.

- Karl Kunkle,
Schneider Downs Wealth Management Advisors LP, Schneider Downs & Co. Inc.,
kunkle@schneiderdowns.com.

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