In June 2022 the IRS announced that they were beginning a pilot program of pre-audits, whereby they will send a letter to a plan sponsor which informs them that their plan has been selected for audit, along with instructions that state that they have 90 days from the date of the letter in which to respond to the IRS agent.  These letters usually are choosing one primary issue that they are reviewing.

The advantage to the plan sponsor with this type of audit is that it allows the plan sponsor time to review their plan, identify any compliance issues, make corrections under the Employee Plans Correction Resolution System (EPCRS), if necessary, and receive a closing letter if the corrections are accepted by the IRS.   Additionally, if there are other items found under this type of audit, the fees are lower than the Closing Agreement Program sanctions.

The first thing that a sponsor should do if they receive one of these letters it to contact their third-party administrator (“TPA”) or service provider.    Their TPA can assist with reviewing the plan for issues, assisting with correction (if necessary) and providing the substantiating documentation to the agent.

Once the IRS agent has reviewed and approved any corrections, a Closing Letter will be issued stating the plan is qualified.

For additional information or questions, please contact your TPA.

By: Karen Foster, QKA
Director of Retirement Plan Services

Establishing a 401(k) Plan for your employees is a great benefit, but employers must be aware of their fiduciary responsibilities.  To ensure your Plan is compliant and running well, consider the following best practices.

• Plan document review
  • Every six years the Internal Revenue Service requires that Plan Documents be restated to properly reflect changes that may have occurred since the last plan restatement. Amendments that may have been made, are captured in the newly updated plan document.  This also provides the Plan Sponsor the opportunity to make certain that the Plan is operating in accordance with the Plan Document.  Plan management can remedy any provisions that are not intended.  Some areas to carefully review are eligibility, compensation and benefit payments.
• Non-discrimination testing
  • Your Third Party Administrator performs non-discrimination annually, as required under the terms of your Plan. Depending on the terms of your plan, corrective distributions or contributions may be due to or from participants. Plan management should be aware of the terms of your Plan to avoid any surprises.
• Changes in annual contribution limits
  • Review payroll to make sure that participants who desire to defer the maximum allowed by law, are properly set up in the payroll system to achieve this goal. Determine on an annual basis that participants eligible to make catch-up contributions are identified and provided an opportunity to make additional deferrals.

For additional questions related to this or any topic, please contact your TBC Advisor.