IRS Unveils New Pilot Pre-Examination Compliance Program for Pension Plans | Proskauer – Benefits and Executive Compensation Blog
Have you ever dreamed of being able to predict the future? Or at the very least, predict the timing of a pension plan audit? Well, you might get lucky with your second wish.
Last Friday, the IRS Employee Plans division announced a new pilot program in which it will inform pension plan sponsors 90 days in advance that their plan has been selected for further review. The pilot program has three main features:
- Notice of an upcoming audit: Ninety days before the examinations begin, the IRS will notify plan sponsors by letter that their retirement plans have been selected for an upcoming audit. It is unclear from the announcement whether this 90-day review period will apply to all pension plan audits (including those occasioned by a recommendation from another body, such as the Department of Labour), or only pension plans randomly selected for audit.
- 90-day review period to automatically correct errors: Plan sponsors are encouraged to use the 90-day period to review their plan document and operations to confirm compliance with current tax qualification rules. The plan document and operational errors identified during this 90-day period, if eligible, may be self-corrected by the plan sponsor using the principles of the IRS Voluntary Compliance Program set forth in the Resolution System Employee Plans Compliance (EPCRS). The IRS will review any proposed self-correction and documentation to confirm that it agrees with the resolution. The IRS will then issue a closure letter Where conduct a limited or full scope review.
- Reduced fees for errors not eligible for self-correction: If, within the 90-day period, a plan sponsor identifies errors that are not eligible for self-correction, they may request a closure agreement from the IRS. In this process, the IRS will apply the VCP fee structure to determine the amount of the sanction, rather than the normal audit CAP fee that would otherwise apply to errors identified during an IRS review. Because CAP audit fees are much more unpredictable and can be significantly higher than VCP fees, this pilot program provides a valuable opportunity for plan sponsors to face costly errors not eligible for self-correction. .
While this is only a pilot project and not part of the IRS compliance program (yet), while it lasts, this pre-examination pilot program is a new potentially useful tool for plan sponsors to ensure compliance with tax qualifications for pension plans.
So what should plan sponsors do next? The ability to predict the future is only of value to those who use the information to change their proverbial destiny. Sponsors and administrators who receive a 90-day pre-review notice should immediately work with their attorneys and other advisors to conduct a self-audit to identify any compliance issues and resolve them within the 90-day period.
Of course, given what is involved in performing a detailed review, identifying errors, internal coordination and then fully correcting errors, the 90-day period may seem shorter than it is. . That said, it’s a good idea for plan sponsors and administrators to consider working with their professionals to conduct periodic self-audits, even in the absence of an imminent audit.