On February 7, 2024, the IRS announced it would continue its Pre-Examination Retirement Plan Compliance Program pilot with the Pre-Examination Compliance Pilot 2.0. The pilot program aims to enhance tax compliance for retirement plans by allowing plan sponsors to identify and address issues before their retirement plans are subject to a full-scale examination.

If selected for the pilot program, plan sponsors will receive a notice from the IRS that their retirement plan has been chosen for an examination and that, if they choose to respond, they have 90 days to perform an internal review to determine whether the retirement plan’s documents and operations meet current tax requirements. The plan sponsor will then present their findings in response to the IRS and the IRS will determine whether a full-scale or limited examination is still warranted. The initial Pre-Examination Compliance Program resulted in a 72% response rate from plan sponsors.

In the event a plan sponsor’s internal review reveals an issue in the retirement plan’s documents or operations that is eligible for correction through the Employee Plans Compliance Resolution System (EPCRS), the plan sponsor may make such corrections through either the self-correction program of the EPCRS, which does not incur fees from the IRS, or the voluntary compliance program of the EPCRS, which is subject to the voluntary correction program fee structure. Additionally, if an issue is revealed that is not eligible for correction through the EPCRS, the plan sponsor may still submit a request for a closing agreement to the IRS, and the IRS will use the voluntary correction program’s fee structure to determine the amount owed under the closing agreement, which may result in considerable cost savings when compared to fees and penalties assessed in a full-scale examination that reveals the same issue.

With the continued rollout of the Pre-Examination Retirement Plan Compliance Program, the IRS aims to collaborate with plan sponsors to address discrepancies early, streamline the examination process, and reduce the taxpayer burden resulting from full-scale examinations of retirement plans.

Bottom Line: If you or your organization receives notice of an audit of your retirement plan by the IRS and is provided the opportunity to participate in the Pre-Examination Retirement Plan Compliance Program, expediently conducting an internal review and replying to the notice within the 90-day window could save your organization both time and money.

For more information or any questions regarding plan compliance and operations please contact Matt Secrist or Amelia Trefz.