February 22, 2024 IRS announces continuation of pilot program giving qualified retirement plan sponsors chance to review and correct plan documents and operations
IRS Employee Plans announced on February 7, 2024, that it has started the second phase of its pilot Pre-Examination Retirement Plan Compliance Program. In the second phase, the IRS continues notifying retirement plan sponsors that their plan was selected for examination and gives them 90 days to review and correct any mistakes in their plan documents or operations, without a comprehensive audit. According to the IRS, 72% of the 100 plan sponsors notified during the first phase responded. Compliance program Under this program, the IRS first sends letters notifying plan sponsors that their retirement plan was selected for examination. Plan sponsors then have 90 days to review their plan document and operations to determine if they meet current requirements. Plan sponsors that find mistakes in their plan documents or operations may be able to self-correct through the Employee Plans Compliance Resolution System (EPCRS). If the mistakes cannot be self-corrected, then plan sponsors can request a closing agreement. The IRS will use the Voluntary Correction Program (VCP) fee structure to determine the sanction amount, which is less than fees that could be assessed when a plan is under audit. If plan sponsors respond within 90 days with documentation about plan compliance, the IRS will either issue a closing letter or conduct a limited or full scope examination. Plan sponsors that do not respond within 90 days will be notified that the IRS is scheduling an examination. At the end of this pilot, the IRS said it will evaluate the program's effectiveness and determine whether it should continue to be part of the IRS's overall compliance strategy. Implications Plan sponsors should consider performing a review of their plan documents and operational compliance in advance of potentially receiving a notification from the IRS. If errors are identified, plan sponsors may self-correct or make corrections through VCP. Participation in these programs can simplify the response process if an IRS notice is received and could expedite the examination process if the IRS chooses to audit the plan. Additionally, it could avoid significant sanctions, which can be assessed under the IRS's Audit Closing Agreement Program (CAP).
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