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New IRS 90-day pre-examination compliance pilot program

Health and Benefits|Total Rewards|Retirement

By Stephen Douglas and William “Bill” Kalten | July 7, 2022

IRS pilot program gives employers 90 days to review their retirement plan documents and operations to identify errors, which then may be self-corrected.

On June 3, the IRS Employee Plans function announced it is piloting a pre-examination retirement plan compliance program. Under this program, the IRS will notify a retirement plan sponsor by letter that its plan has been selected for an upcoming examination. The sponsor will be given a 90-day window to review its plan’s document and operations to determine if they meet current tax law requirements. Any mistakes revealed during the review can then be self-corrected by the sponsor using the voluntary correction program (VCP) under the IRS Employee Plans Compliance Resolution System (EPCRS).

If a plan sponsor cannot self-correct a mistake, it can request a closing agreement from the IRS to settle the issue. The sanction amount the sponsor would need to pay under the closing agreement would be determined using the VCP fee structure, which currently has a maximum user fee of $3,500. VCP fees are generally significantly lower than sanctions imposed under an IRS audit, so plan sponsors that receive a pre-examination letter would likely benefit from participating in the pilot program correction opportunity.

The IRS will review the sponsor’s documentation to determine whether it agrees with the sponsor’s conclusions and that any defects have been “appropriately corrected.” The IRS will then issue a closing letter or conduct either a limited-scope or a full-scope examination.

A sponsor that doesn’t respond within 90 days can expect an IRS examination.

Going forward

  • Although the pilot is currently very limited, it provides a great opportunity for sponsors that receive a pre-examination letter to avoid costly sanctions that might otherwise be imposed following an audit. Plan sponsors who receive a pre-examination notice should immediately work with their benefit consultants, attorneys and other advisors to conduct a self-audit to identify any compliance issues within the 90-day window.
  • All plan sponsors should take a proactive approach and periodically conduct operational compliance reviews, which signals to the IRS a commitment to compliance.
  • The pilot program began in June 2022 and is expected to be completed by the end of this year.
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Senior Director, Retirement and Executive Compensation

Senior Director, Retirement and Executive Compensation

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