The IRS recently announced the start of the second phase of the Pre-Examination Retirement Plan Compliance Program pilot. During the first phase, the IRS notified 100 plan sponsors by letter that their retirement plan was selected for an upcoming examination. The scope was limited to a single issue: Internal Revenue Code (IRC) section 415 compliance for defined contribution plans other than 403(b) programs. Plan sponsors were given 90 days to determine if their plan documents and operations were compliant. Sponsors could self-correct identified mistakes using the IRS Employee Plans Compliance Resolution System or request a closing agreement and pay a relatively small fee ($3,500).[1]
As indicated in the announcement, the first phase of the program had a 72% response rate. For the second phase, the IRS sent letters to 100 different plan sponsors. No substantive changes in how the program operates were made for phase two, but our understanding is that the scope has changed to IRC section 402(g) excess deferrals and perhaps additional plan issues. The IRS is trying to determine if an issue change affects the results before deciding whether to make the program permanent.
Plan sponsors that receive a 90-day pre-examination letter should work with their benefit consultants, legal counsel and other advisors to conduct a self-audit to identify any compliance issues within the 90-day window.
