The IRS Tax Exempt & Government Entities division (TE/GE) has published its annual program letter for the October 2021–September 2022 fiscal year (FY 2022). The program letter describes TE/GE’s FY 2022 priorities in broad strokes, while quarterly updates of the division’s compliance programs and priorities webpage detail specific plans and compliance initiatives. Retirement plan sponsors could see increased enforcement activity starting with the 2022 plan year, particularly in the areas of nondiscrimination testing and preapproved plan documentation.
The program letter says that TE/GE will significantly increase its staff in the upcoming year, with most new hires assigned to enforcement duties. Although the letter doesn’t specifically mention heightened enforcement activity for retirement plans, IRS has already signaled that employers should expect that to happen. The recently proposed update to the Form 5500 series — which would take effect for 2022 plan-year filings — includes new IRS compliance questions to help the agency better identify noncompliant plans for examination. Employers would need to report if they relied on the permissive aggregation rules to pass minimum coverage and nondiscrimination testing. In addition, 401(k) plan sponsors would need to identify the method used to pass the actual deferral percentage (ADP) and actual contribution percentage (ACP) tests. Employers with preapproved plan documents would also have to report the serial number and date of their opinion letters.
The letter has little else to say about employee benefit plans, suggesting only that TE/GE will continue to pay close attention to employee stock ownership plans (ESOPs). The division also will support examinations of high-income taxpayers “with TE/GE issues,” including retirement plans.
The compliance webpage lists no new initiatives since the last quarterly update, but indicates that TE/GE will continue to focus on the following benefit and compensation issues in FY 2022:
Although the compliance page indicates that TE/GE will continue to pursue issues described in program letters from previous years, certain initiatives no longer appear on the page, which could indicate that the division believes these matters have been sufficiently addressed. Among those items are limited-scope compliance checks on partial plan termination and inflated assets reported on the Form 5500.