June 08, 2022

Retirement plan sponsors will get on board with a just-announced IRS pre-examination compliance pilot program. Under the initiative, which starts this month, sponsors of plans selected for audit will have 90 days to review plan documents and operations for compliance with tax law.

Correction opportunity. During the window, sponsors will be able to use IRS’s Employee Plans Compliance Resolution System (EPCRS) to self-correct any identified errors that would be eligible for self-correction outside of an audit. For other errors, the sponsor can request an IRS closing agreement, which may involve sanctions based on EPCRS’s Voluntary Compliance Program fee structure (generally $1,500–$3,500, depending on plan assets).
 

IRS follow-up. At the end of the window, IRS will review the sponsor’s documentation to determine if the self-corrections (if any) were appropriate. The agency then will either issue a closing letter or conduct a limited or a full examination. Sponsors that don’t respond to the initial pre-examination notice will be scheduled for an IRS audit.
 

Cost and time savings expected. IRS has already signaled its intention to increase enforcement activity in 2022. The agency hopes this new program will reduce the burden on plan sponsors and the time spent on retirement plan examinations, consistent with the 2021 expansion of EPCRS’s self-correction provisions. After the pilot ends — on a date not yet announced — IRS will evaluate the program and decide whether to maintain it going forward. Employers will likely appreciate the opportunity to avoid the time and expense associated with plan audits, though the short time frame to complete the review and correct any identified errors may make the task a challenge.
 

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Margaret Berger
by Margaret Berger

Partner, Mercer’s Law & Policy Group

Brian J. Kearney
by Brian J. Kearney

Principal, Mercer’s Law & Policy Group


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