IRS Launches Pre-Examination Compliance Pilot for Retirement Plans

06/14/2022 Written by: Lisa Vilardi, AIF®

In its June 3, 2022, Employee Plan newsletter, the IRS announced a 90-day pre-examination compliance pilot program for retirement plans. Set to begin immediately, plan sponsors may receive a letter notifying them that their retirement plan has been selected for an upcoming examination.

Plan sponsors are given 90 days to review their plan documents and operation for compliance and correct errors. If mistakes are found, it may be possible to self-correct them using the IRS’ EPCRS (Employee Plans Compliance Resolution System), which includes the following elements:

  • Self-correction: a plan sponsor that has established compliance practices and procedures may, at any time without paying any fee or sanction, correct insignificant Operational Failures under a Qualified Plan, a § 403(b) Plan, a SEP, or a SIMPLE IRA Plan.
  • Voluntary correction with IRS approval: at any time before an audit, a plan sponsor may pay a limited fee and receive the IRS's approval for correction of a Qualified Plan, § 403(b) Plan, SEP, or SIMPLE IRA Plan failure.
  • Correction on audit: if a failure (other than a failure corrected through self-or voluntary correction) is identified on audit, the plan sponsor may correct the failure and pay a sanction.

The IRS states that mistakes in operating your retirement plan can often be self-corrected without filing a form with the IRS or paying a fee. Eligible operational failures include:

  • failure to follow the terms of the plan
  • excluding eligible participants
  • not making contributions promised under the plan terms
  • loan failures

Document failures aren’t eligible for self-correction. A document failure occurs when you don’t have your plan document up-to-date or if your plan document doesn’t fully comply with the tax law.

If, during the review, mistakes are found that are not eligible for self-correction, a closing agreement can be requested. The IRS will use the Voluntary Correction Program fee structure to determine the sanction amount to be paid.

Upon reviewing your documentation, the IRS will determine whether it agrees with your conclusion. The IRS will conduct a limited or full-scope examination if it does not. If it does, a closing letter will be issued.

This pilot program aims to reduce the amount of time the IRS spends examining retirement plans. At the end of the pilot, the IRS will evaluate its effectiveness and determine if it should become part of its overall compliance strategy.

Mistakes can happen, so it's essential to monitor your plan proactively. Your retirement plan advisor is an excellent resource for helping you with plan compliance. Contact us with any questions about qualified retirement plans.

Tax Prep_square
Plan Sponsors: Don’t Miss Upcoming Deadlines
Retirement Plan Sponsors02/15/2023

As you know, the “Plan Sponsor is responsible for ensuring that its plan operates in compliance with the rules related to qualified plans.” 1  That, in turn, means, you are held accounting to the...

Is A Solo 401(k) Plan Right for Your Small Business?
Retirement Plan Sponsors12/27/2022

If you work for yourself, you may want to consider establishing a solo 401(k) plan for 2023. A solo 401(k) plan is a unique savings option for small business owners without employees, or if the only...

Is a PEP Right for You?
Retirement Plan Sponsors11/01/2022

Providing employees with a quality retirement savings plan may seem out of reach for smaller or start-up companies. But a key provision of the SECURE Act introduced a new option, called a PEP,...