By Niki Stehlik,
In June 2022, the IRS began sending notices to retirement plan sponsors for examination of their employee retirement plans. This new inspection program requires plan sponsors to self-review their plans for non-compliance. If non-compliance is discovered, the program allows plan sponsors the opportunity to make corrections through the Employee Plans Compliance Resolution System (EPCRS). Corrections through EPCRS could substantially reduce the amount of penalties assessed if any noncompliance is found. Prior to this IRS program, if a sponsor was selected for examination and any noncompliance was found, errors were corrected through the Audit Closing Agreement Program (Audit CAP), which could result in significant penalties.
How the Program Works
Plans selected for examination will be sent a 90-day pre-examination notice. The plan sponsor is then required to respond by performing a self-review of the plan documents and operations. If compliance issues are self-identified and those issues qualify to be corrected under the EPCRS self-correction program, they can then be submitted for IRS approval. Common areas of noncompliance include:
– outdated plan documents
– incorrectly administering the plan in accordance with the plan documents
– failing to make required minimum distributions
– not filing the plan’s Form 5500 timely
The IRS will determine if an examination is still necessary based on the information provided. If the plan sponsor does not respond to the notice within 90 days, the IRS will contact the plan sponsor and schedule a full examination without the option to self-correct.
How to Be Prepared
It is always best practice to regularly evaluate the processes in place for administering your employee retirement plan and to maintain the most current documents and agreements that relate to the plan. The Department of Labor offers several resources to ensure that plan sponsors are fulfilling their fiduciary responsibilities for administering the retirement plan. HBE’s employee benefit plan team is also available to assist with a review of your employee retirement plan to ensure proper documentation and processes are in place.