401(k) Rescue, the Ekon Benefits 401(k) Fix-It Series, describes the most common 401(k) mistakes as determined by the IRS. We provide explanations of common mistakes, suggested prevention techniques and recommendations on correction methods.

Common Mistake #1: Failure to Update Your Plan Document to Comply with Law Changes

Tax laws affecting 401(k) plans change frequently, and one of the most common mistakes is failing to amend the plan document to comply with new legal requirements. The IRS sets deadlines for when all 401(k) plans must be updated to reflect changes in tax laws.

If these amendments are not made by the required deadline, the plan is no longer considered a qualified retirement plan, which means it is at risk of losing its favorable tax treatment under federal tax law.

This mistake may be self-corrected if certain conditions are met. Otherwise, it can be addressed through the Voluntary Correction Program (VCP). If your plan is not currently under examination, you can submit a VCP filing to the IRS, detailing the corrective action for this failure.

Your 401(k) plan must be regularly updated to reflect changes in tax and retirement laws. In addition to older legislation like EGTRRA, PPA, HEART, and WRERA, your plan must now reflect provisions from the SECURE Act of 2019 and the SECURE 2.0 Act of 2022.

How to Avoid This Mistake

• Stay Current with Legal Changes: Ensure your plan document is updated regularly to reflect the latest tax law changes.
• Consult with Plan Advisors: Work closely with legal or plan administration experts to keep your plan compliant.

For a complete listing of the most common 401(k) mistakes, please visit the IRS 401(k) Plan Fix-It Guide. For assistance in correcting a plan error, please contact Ekon Benefits at (314)367.6555 or info@ekonbenefits.com.