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Retirement Plan Audits Continue Despite the Pandemic

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”). 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.

Despite the continued pandemic, during the fiscal year 2021 the IRS completed 4,295 examinations of retirement plans. The most prominent issues found were:
  • 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.
If your plan has compliance issues that need to be corrected, the IRS’ Employee Plans Compliance Resolution System (“EPCRS”) is available to permit sponsors of retirement plans (including SEP and SIMPLE IRA plans) to correct plan failures. EPCRS offers 3 correction programs: 
  1. Self-Correction Program (“SCP”) to correct certain plan failures without contacting the IRS or paying a fee;
  2. Voluntary Compliance Program (“VCP”) 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; and
  3. Audit Closing Agreement Program (“CAP”) to resolve failures discovered during an IRS audit that can’t be corrected using self-correction.
The Letter noted that in fiscal year 2021, Employee Plans received 1,711 voluntary correction applications and closed 1,922 cases. Below are some of the notable failures corrected through VCP in fiscal year 2021.

The beginning of the New Year is a good time to evaluate your retirement and other benefit plans and address any potential compliance issues.  Defined contribution plan are also in the middle of the Cycle 3 document restatement, which is a great time to review the plan and make any changes. 

Message from the Tax Exempt and Government Entities (TE/GE) Commissioners, Publication 5329 (Rev. 12-2021), Catalog Number 72018Y, Department of the Treasury Internal Revenue Service.

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