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90-Day Pre-Exam Compliance Program for Retirement Plans

IRS 90-day Pre-Examination Compliance Program

In June, the IRS began piloting a new compliance program for benefit plan sponsors. This program gives benefit plans 90-days’ notice of an upcoming examination, giving taxpayers time to self-correct compliance errors before the IRS performs its official examination.

The IRS hopes that having the opportunity to self-correct errors will reduce audit times and relieve audit burdens from plan sponsors. While we cannot comment on how efficiently future IRS examinations will be conducted, we do think that taking the time to review your operations will only make your benefit plans stronger.

More About the Program

You will receive a notice in the mail if your benefit plan has been selected to participate in the pilot program. During the 90 days you are given, you should review your plan operations and see if you are compliant with IRS reporting requirements. Not all errors can be self-corrected, but if yours can, you should follow procedures under the IRS’s Employee Plans Compliance Resolution System to correct your mistakes.

At the end of the 90-day period, the IRS will determine if an examination is needed, and if one is, how in-depth it will be.

How LaPorte Can Help

If you’ve been selected to participate in the pilot program, contact us right away so we can help with the pre-examination process. Over the next 90 days, we can test to see if your retirement plan is compliant with IRS guidelines and help you self-correct errors. Some of the things we’ll look at are:

Minimum Age or Service Participation

The IRS requires all plans to welcome employees to participate who are 21 years or older, or who have been employed for at least one year. You can invite younger employees or those who have worked for less than a year to participate, but it must be written in the plan documents.

Minimum Vesting

Employees will always be 100% vested in contributions they make, but they may not own the rights to employer contributions from Day 1. The IRS requires that each employee vest — at minimum — a stated percentage of their interest in their plan each year. If you want to make sure your plan’s vesting schedule meets IRS guidelines, you can start by looking at the IRS’s website.

Nondiscrimination Testing

Unless your plan is exempt from nondiscrimination testing, it cannot discriminate in favor of highly compensated employees. Not only must you ensure you’ve tested for nondiscrimination, but you must also show that you’ve classified highly compensated employees correctly.

Required Minimum Distributions

Has your plan been tracking and making RMDs? RMD rules have changed in recent years, which has made RMD compliance a top-tier issue for many plan sponsors. Make sure that you’re following new RMD guidelines.

Matching Contributions

Not all qualified plans allow matching contributions, but if yours does, you must either prove that your matching contributions are nondiscriminatory or that you’ve met safe-harbor matching principles.

Annual Reporting

There are two forms that most retirement plans need to file with the IRS: Form 5500 (your annual return) and Forms 1099-R (to report plan distributions). But depending on your activity, you may be required to file additional forms. For example, you’ll need to file Form 5310-A if your plan merged with another plan, or Form 5308 if you’re requesting to change your plan’s tax year. The IRS has a helpful list of required filings here.

Following Your Plan Document

IRS compliance isn’t the only thing you’ll need to think about. The IRS will also want to verify that you are operating in accordance with your plan document.

Your plan document establishes how you operate your retirement plan. It should outline:

    • Who receives benefits
    • Which employees can participate
    • How matching contributions are calculated
    • What the enrollment period looks like
    • How employees can contribute to their accounts
    • The plan’s vesting schedule
    • The plan’s fees
    • Who the fiduciaries are
    • How and when employees are notified of plan changes
    • Whether the plan has an auto-enrollment feature
    • Etc.

If you’re operating your plan differently than your plan document, the IRS can revoke your plan’s qualified status.

Compliance is Important

LaPorte has a well-established employee benefit plan practice, and we can help you navigate this pilot pre-examination program. Our Employee Benefit Plan Services Group understands the complexities of benefit plans, and we have the experience and knowledge to help you correct mistakes you may find in your self-review.
Whether you are selected to participate in this program or not, we think all plan sponsors could benefit from reviewing their plan and its operations on a regular basis. Here are just a few best practices we recommend:

  • Review plan documents and compliance annually.
  • Ensure a sound risk mitigation process.
  • Benchmark periodically.
  • Understand and maintain an appropriate balance of plan service and participant fees.
  • Measure employee participation periodically and take action to increase it as needed.
  • Integrate education about retirement with other financial wellness topics such as debt management and emergency savings.
  • Leverage technology to enhance the user experience of plan participants.
  • Improve diversification through a plan refresh or a re-enrollment initiative.

If you receive notification in the mail that you’ve been selected for the pilot program, contact us immediately and we can help you get the ball rolling.