United States: IRS 2021 Achievement Letter Shows Retirement Plan Audit Activity Continues
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On January 6, 2022, the Tax Exempt and Government Entities (“TEGE”) Division of the Internal Revenue Service released its Fiscal Year 2021 Achievement Letter (the “Letter”). Among other responsibilities, TEGE through its Business Plans division is responsible for tax matters relating to retirement plans. The United States Department of Labor shares jurisdiction and focuses on the enforcement of ERISA, the other major law affecting benefit plans. As the name suggests, the letter described the accomplishments and results of various IRS compliance initiatives during the period October 1, 2020 to September 30, 2021.
Employers and advisers who might have thought the IRS cut or halted audits and reviews of pension plans during the pandemic would be wrong. The letter indicates that 4,295 reviews were completed in fiscal 2021. Employee plans proposed revocation of favorable tax status to 16 plans as a result of these reviews for matters such as:
- Failure to modify, or modify in a timely manner, a plan document.
- Failure to comply with the non-discrimination requirements of Article 401 (a) (4) of the Tax Code.
- Non-compliance with the eligibility / participation / coverage conditions of article 410 of the Tax Code.
- Failure to comply with the requirement to limit contributions or benefits in article 415 of the Tax Code.
- Failure to comply with participation and coverage requirements in a simplified employee pension plan (EPP).
Employers who know their pension plans have compliance issues in any of these categories, or any known compliance issues, would be wise to seek professional advice to resolve the issue. The start of the year is also a good time to do a self-assessment of pensions and other benefits.
If any issues are discovered, the Employee Plan Compliance Resolution System (“EPCRS”) is available to enable pension plan sponsors (including SEP and SIMPLE IRA plans) to correct plan failures. The letter provides statistics on the Voluntary Compliance Program (“VCP”) that is part of the EPCRS, which allows employers and pension plan sponsors (at any time prior to the review) to apply to the EPCRS. ‘IRS, pay a fee and receive approval from the IRS for the correction of the plan. qualification failures. The letter indicated that in fiscal 2021, employee plans received 1,711 voluntary correction requests and closed 1,922 cases. In the author’s experience, although the EPCRS allows employers to correct pension compliance issues on their own without IRS approval, the certainty of the review of the IRS approval and correction has tremendous value.
A copy of the letter can be found here.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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