Check Your Mail - Is an IRS Audit Next?

Posted on February 19, 2010 by Employee Benefits Practice Group

The Internal Revenue Service (IRS) will begin mailing questionnaires to 401(k) plan sponsors to gather information about compliance with applicable tax rules. The questionnaire will focus on 401(k) plan operations, including eligibility, employee deferral rates, compensation definitions and nondiscrimination testing. The IRS is expected to mail several thousand questionnaires to 401(k) plan sponsors around the country to help make certain it reaches a representative sample.

The questionnaire is in response to past IRS audits that have shown significant 401(k) plan noncompliance from a lack of internal controls at the plan sponsor level. In addition, the questionnaire is based on various tools the IRS provides on its website, including the 401(k) fix-it guide, the 401(k) checklist, and the check-up for 401(k) plans.  Please note that while accounting firms prepare a financial audit for 401(k) plans with 100 or more participants, the financial audit is significantly different than what the IRS examines on its 401(k) plan compliance audits.

After collection of the responses or nonresponses, the IRS will issue a report on its findings to be published on its website. The report will assist the IRS to develop further website tools, perform audits and compile strategies to deal with any noncompliance trends reflected in the data received.

Littler’s employee benefits attorneys are available to assist plan sponsors with their answers to the questionnaire and are also available to assist plan sponsors in self-audits of their 401(k) plans as well as assisting with the IRS tools.
 

This entry was written by Melissa Kurtzman.
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Worker, Retiree, and Employer Recovery Act Aims to Modify Pension Distribution Requirements

Posted on December 15, 2008 by Jay Sumner

On Dec. 11, the Senate approved a bipartisan bill that is designed to ease the financial crisis for certain employees and businesses by, among other things, modifying pension distribution requirements. The Worker, Retiree, and Employer Recovery Act of 2008 (H.R. 7327), introduced in and passed by the House of Representatives on December 10th, also makes technical corrections to the Pension Protection Act of 2006 (PPA).  The President is expected to sign the bill.

In essence, the bill would temporarily ease funding and distribution rules governing single and multi-employer pension plans and modify asset depreciation requirements, ostensibly to free up cash for payroll and other business expenses in light of the faltering economy. Some of the key bill provisions include:

  • For single-employer pension plans:
    • Permits temporary adjustment to contribution, distribution, and projected earnings provisions of the PPA;
    • Gives these plans three years to phase in PPA pension funding target percentages.
  • For multi-employer pension plans:
    • Permits a freeze of plan funding status to provide time for economic recovery before declaration of critical or endangered status;
    • Allows the election of a three-year extension of current amortization rules to help offset this year’s asset losses.
  • For taxpayers:
    • Eliminates minimum distributions for 2009 to provide time for IRAs and other benefit accounts to recover asset losses.

Although it is generally unusual for Congress to introduce new legislation so close to the end of a session, the current financial catastrophe has changed the rules of the game. Business interests have been actively lobbying Congress in recent weeks to pass some type of pension relief measure. Although these may be welcome changes, they will have little impact on economic recovery, and merely delay recognition of the impact of the severe investment losses suffered by retirement plans, particularly for the millions of participants in 401(k) plans and IRAs who have seen substantial erosion in their expected retirement assets. Regardless, defined benefit plan sponsors are still required to fund their defined benefit plans and are liable for any shortfall on plan termination and the Pension Benefit Guaranty Corporation still must provide back-up termination insurance to these plans.
 

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