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New Pre-Examination Compliance Pilot Program for Retirement Plans

In an effort to reduce taxpayer burden and the amount of time spent on retirement plan examinations, in early June, the IRS introduced a new 90-day Pre-Examination Compliance Pilot Program. Under the program, the IRS will notify a plan sponsor that it intends to audit its retirement plan while also providing that sponsor with 90 days to identify any potential compliance failures and to correct those failures.

The pilot program has three key features:

  • Advance Notice of an Upcoming Examination – Ninety days in advance of starting examinations, the IRS will send a letter to plan sponsors whose retirement plans have been selected for an upcoming audit. Plan sponsors will then have 90 days to identify any documentary or operational compliance failures and inform the IRS of those failures. The IRS will ordinarily assist by telling the sponsor which issue(s) it is interested in reviewing.
  • 90-Day Review Period to Self-Correct Errors – Plan sponsors should use the 90-day period to review their plan document and operations to confirm compliance with current tax-qualification rules. Plan document and operational errors identified during this 90-day period, if eligible, may be self-corrected by the plan sponsor using the provisions of the IRS’s voluntary compliance program set forth in Employee Plans Compliance Resolution System (EPCRS). The IRS will subsequently review any proposed self-correction(s) and documentation to confirm that it agrees with the resolution(s), and then issue a closing letter or conduct a limited or full scope examination.
  • Reduced Fees for Errors Not Eligible for Self-Correction – If, within the 90-day period, a plan sponsor identifies errors that are not eligible for self-correction, it can request a closing agreement from the IRS. In that process, the IRS will apply the VCP fee structure to determine the sanction amount, rather than the normal Audit CAP fees that would otherwise apply to errors identified in an IRS examination. Because Audit CAP fees are far more unpredictable and can be significantly higher than the VCP fees, this pilot program provides a valuable opportunity for plan sponsors to get in front of costly errors not eligible for self-correction.

Sponsors and administrators who receive a 90-day pre-examination notice should immediately consult their attorneys and other advisors to conduct a self-audit to identify any compliance issues and address them within the 90-day window. Given the complexity of this process, which involves a detailed review, identification of errors, and correction of those errors, the 90-day period will go quickly. As such, it is a good idea for plan sponsors and administrators to consider working with their professionals to conduct self-audits on a regular basis even in the absence of an impending audit.

Please contact us if you have questions about the information outlined above, our seasoned and experienced employee benefit plan professionals are here to help. You can also learn more about our Employee Benefit Plan Audit  services by visiting our website.

About the Author

Steph Kramer

Steph joined McKonly & Asbury in 2016 and is currently a Manager in the firm’s Audit & Assurance Segment. Steph audits a broad spectrum of employee benefit plans, including 401(k), 403(b), retirement, profit sharing, health and… Read more

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