IRS Says Option Exercises Causing 401(k) Errors

Monika Templeton, director of employee plans examination, told an IRS phone forum that about half of all 401(k) plans that have been audited have errors in calculating compensation and that stock option and ESPP exercises cause one of the most common problems. These exercises are often subject to ordinary income tax treatment and must be included in calculations of salary both for tax and anti-discrimination testing, but the information often does not get from the stock plan administrator to the 401(k) plan administrator.