The Internal Revenue Service has sent out its 401(k) compliance check questionnaire to a sample of 1,200 plan sponsors. Monika A. Templeman, director of IRS Employee Plans Examinations, said at a recent meeting of the American Bar Association's Section of Taxation that the questionnaire is “technically voluntary, but we want the information.”

During the meeting, officials from IRS and the departments of Labor and Treasury also addressed a number of other issues concerning defined contribution plans. Officials gave some insight into the timing of the release of final regulations, the thought processes behind constructing the regulations, and how the agencies are gathering their information.

Compliance questionnaire.

The 401(k) plan compliance questionnaire is a project of the Employee Plans Compliance Unit. Its purpose is to take a “snapshot” of 401(k) plan compliance and provide data to help IRS focus guidance and outreach for these plans, Templeman said.

She said plan sponsors have 90 days to complete the questionnaire but can ask for an extension. She stressed that the questionnaire was not an audit, but added that the information will be utilized in various ways, including an enforcement action if appropriate. IRS will publish a report in 2011 with the results of the questionnaire, Templeman said.

Target fund guidance.

Louis Campagna, chief of the Fiduciary Interpretations Division at the Labor Department's Employee Benefits Security Administration, said the department has posted on its website guidance on target date funds that was written with the Securities and Exchange Commission. “This guidance is a way of telling participants what they should look for,” he added. He said the department also is compiling a checklist for plan sponsors about target date funds.

Reproposed investment advice rules.

Campagna said the key issue in reproposed investment advice rules concerned the computer model requirement. The reproposed rules provide that computer models would “apply generally accepted investment theories that take into account the historic risks and returns of different asset classes over defined periods of time.” However, use of computer models that “inappropriately distinguish among investment options within a single asset class on the basis of a factor that cannot confidently be expected to persist in the future” would be prohibited.

Robert Miller, of Calfee, Halter & Griswold LLP, Cleveland, said ignoring historical investment performance would result in the computer program recommending the option with the lowest fees, regardless of whether it was a high performing fund.

In response, Campagna said there still is a question as to whether the department is going to be involved in setting the design of the computer model parameters or leave it to the eligible investment expert to certify. However, in considering the computer model, “there may be more to the design that we need to get into to ensure nonbias and the right kind of performance for participants,” Campagna said.

Copyright 2010, The Bureau of National Affairs, Inc.