In June 2022, the IRS began piloting a pre-examination retirement plan compliance program. This is beneficial to plan sponsors because it provides an opportunity for plan sponsors to correct mistakes at a reduced cost and possibly avoid a full IRS examination. Anytime you receive a correspondence from the IRS or DOL, you should inform your TPA or service provider as soon as possible to determine if a response is needed. In some situations, no action is required. In this case, however, the letter opens a 90-day window. Within that time frame, you will need to:
- Review your plan document and operations.
- Determine if they meet current tax law requirements.
- Self-correct any mistakes that qualify under the Employee Plans Compliance Resolution System (EPCRS).
- Respond to the letter and provide your conclusion:
- No mistakes were found.
- Mistakes were found and self-corrected (provide the details of the error and correction).
- Mistakes were found, but they do not qualify for self-correction. You may request a closing agreement. This means that the cost could be much less than if the IRS found the mistakes during an IRS examination.
Your TPA or service provider will be able to review the plan information with you to ensure that all necessary steps were previously taken to maintain compliance. If an issue is discovered as part of this review, they can discuss the correction options available. Of course, you don’t have to wait until you receive a letter from the IRS to be sure your plan is compliant! Understanding the terms of the plan and operating the plan according to the document are very important actions to help avoid mistakes.
Once you submit your response, it is reviewed to see if they agree with your conclusion. The IRS will either issue a closing letter or conduct a limited or full scope examination. The intention is that this program will reduce taxpayer burden and the shorten the time spent on retirement plan examinations. The end date of this pilot program is not known, but the process may continue after the pilot period if they find it to be successful.
If you do not provide a response, you will be contacted to schedule the examination. Of course, this is the least favorable option. It is best not to ignore any letter from the IRS or DOL. It is in the best interest of your plan to take action when it is requested, and a 90-day window can close pretty fast!
This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.
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