On January 6, 2022, the Tax Exempt and Government Entities (“TEGE”) division of the Internal Revenue Service released its Fiscal Year 2021 Accomplishments Letter (the “Letter”). Among other responsibilities, TEGE through its Employee Plans division has jurisdiction over tax issues involving retirement plans. The United States Department of Labor shares jurisdiction and focuses on enforcement of the ERISA, the other primary law impacting 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 advisors who may have thought the IRS reduced or discontinued audits and examinations of retirement plans during the pandemic would be mistaken. The Letter states that 4,295 examinations were completed in fiscal year 2021. Employee Plans proposed revocation of favorable tax status for 16 plans as a result of these examinations for issues including:
- Failure to amend, or timely amend, a plan document.
- Failure to meet the nondiscrimination requirements of Tax Code Section 401(a)(4).
- Failure to meet the eligibility/participation/coverage requirements of Tax Code Section 410.
- Failure to meet the limitation on contributions or benefits requirement of Tax Code Section 415.
- Failure to comply with the participation and coverage requirements in a Simplified Employee Pension (SEP) plan.
Employers who are aware that their retirement plans have compliance issues in any of these categories, or any other known compliance issues, would be wise to seek professional advice to address the problem. The start of the year is also a good time to do a self-evaluation of retirement and other benefit plans.
Should any issues be uncovered, the Employee Plans Compliance Resolution System (“EPCRS”) is available to permit sponsors of retirement plans (including SEP and SIMPLE IRA plans) to correct plan failures. The Letter provides statistics on the Voluntary Compliance Program (“VCP”) a part of EPCRS which enables employers and retirement plan sponsors (at any time before examination) to apply to the IRS, pay a fee, and receive IRS approval for correction of plan qualification failures. The Letter noted that in fiscal year 2021, Employee Plans received 1,711 voluntary correction applications and closed 1,922 cases. It has been the author’s experience that even if EPCRS enables employers to self-correct retirement plan compliance issues without IRS approval, the certainty of IRS review and approval of the correction has considerable value.
A copy of the Letter can be found here.