On February 7, 2024, the IRS announced it has started the second phase of the Pre-Examination Retirement Plan Compliance Program pilot. (IRS Employee Plans News, February 7, 2024)

Original Program Pilot

The initial phase of this pilot program was announced on June 3, 2022, which I reviewed and discussed in my article, “IRS Announces Another Compliance (Audit) Pilot Program. Oh joy!.” The program, according to the IRS, is designed to help plans remain in compliance and avoid large fines.

Under the program, the IRS will notify a plan sponsor by letter that its retirement plan has been selected for an upcoming examination. The letter gives a plan sponsor a 90-day window to review the plan’s document and operations to determine if they meet current tax law requirements. If plan officials do not respond within 90 days, the IRS will contact the plan sponsor to schedule an exam.

If, during the 90-day review period, the plan sponsor discovers mistakes in either the plan document or its operation, those mistakes can be corrected during that window. Eligibility for self-correction and principals of correction are outlined in the IRS’s Employee Plans Compliance Resolution System (EPCRS) described in Rev. Proc 2021-30. Mistakes not eligible for self-correction can be corrected and the plan sponsor issued a closing letter. The fee structure for the closing letter will be determined under the Voluntary Correction Program (under EPCRS).

What the plan sponsor pays may prove to be significantly lower than the amount that would otherwise be due if the failures were discovered during an audit and the normal closing agreement fee structure imposed.

Pre-Examination Compliance Pilot 2.0

The announcement that the pilot program has entered the second phase indicates that the results to date under the pilot program have warranted extending the program rather than making substantive changes. The IRS noted during the first phase of the pilot program, 100 pre-exam compliance letters were mailed to plan sponsors which resulted in a 72% response rate. This significant response rate indicated to the IRS that plan sponsors are “eager to take advantage of this program.”

Per the latest announcement, at the end of the pilot program, the IRS will evaluate the program’s effectiveness and determine if it should continue to be part of its overall compliance strategy.

If you have any questions concerning the IRS pilot examination program or questions about your employee retirement plan’s organization or operations, please contact our firm’s employee benefits attorneys.