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5500 Preparer's Manual for 2012 Plan Years

5500 Preparer's Manual for 2012 Plan Years
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Employee Plans Compliance Resolution System update expected “soon”

An updated version of Rev. Proc. 2006-27 will be issued in the next month or two, according to Joyce Kahn, IRS manager of Voluntary Compliance, who spoke on a panel of employee plan experts at the Great Lakes Benefits Conference in Chicago on April 4, 2008. Andrew Zuckerman, director of EP Rules and Agreements, who joined Kahn, predicted the release of the revenue procedure by the end of June. The updated version will not be a major overhaul of the old procedure, Kahn added, but will contain a number of smaller changes that taken together will have a significant effect on the program.

Kahn also announced that the phone number to follow up on the status of Voluntary Correction Program submissions has been changed to 626312-4921.

Expanded procedures described

One change is the expansion of the Appendix F procedure into other areas. Appendix F is the first step to making an official application form for the VCP program. Although not an official form, Kahn encourages its use because it expedites handling. The new procedure will contain a number of “schedules,” with the former Appendix F as the first. Other schedules will relate to other failures, including schedules for all nonamender failures, plan loan failures, participant eligibility failures and certain plan excesses. Also, streamlined submissions for SEPs, SARSEPs and SIMPLEs will allow a practitioner to walk through the corrections process on a mostly “check the box” basis.

The new procedure will contain a number of additional changes, including guidance for corrections under the post-Pension Protection Act version of Code Sec. 415 . The procedure will expand income and excise taxes that the IRS will exercise discretion not to pursue. It will reduce compliance fees under certain circumstances where the sole failure is the failure of plan loans to comply with Code Sec. 72(p) . The procedure will clarify circumstances when a request for a favorable determination letter is or is not required.

Streamlined voluntary corrections procedures

Submissions to the voluntary compliance program have rapidly increased since the various self-correction programs were unified in 2003. To keep pace with the rapid growth, the Voluntary Compliance Program (VCP) has adopted streamlined procedures. The VCP’s most successful streamlining step is the creation of Appendix F of Rev. Proc. 2006-27 (see CCH Pension Plan Guide 17,299R-86 ). Appendix F addresses failures to adopt interim and good faith amendments in a timely fashion. The Appendix F form is a unique combination of submission and compliance statement. The practitioner submits the signed Appendix F to the VCP for Joyce Kahn’s signature. If Kahn signs it and sends it back, Appendix F operates as a compliance statement.

Because this procedure is new and practitioners are not yet used to it, they often stop after the plan sponsor signs. Kahn reminds practitioners to include everything, noting that a place for her signature is often omitted. If not completed, the application is sent to the Voluntary Compliance groups and gets processed along with the regular inventory. If, however, it’s done correctly, it’s “plucked out of line” and considered on an expedited basis. Turnaround for correctly submitted Appendix F forms is generally within a month, and sometimes within a week or two. Kahn also reminds practitioners to include executed amendments, all attachments and employer identification numbers (EINs).

Most common failures described

The most common failure continues to be nonamenders, which has been true since the history of program. Of these, interim nonamenders account for the highest percentage. The second most common failure is the definition of compensation, a failure that can lead to other failures. The third most common failure is failure to include eligible employees. Moving up the list of most common failures is plan loan failures. A complete list of common failures is available on the plan corrections website.

Useful information on corrections website

The members of the panel strongly urged practitioners to avail themselves of the resources found on the IRS’s website, including the webpage dedicated to correcting plan errors. Practitioners are also encouraged to subscribe to the Employee Plans Newsletter. According to Zuckerman, “If you’re not checking the stuff out on our website, if you’re not receiving our newsletter, you’re running the risk of missing some very valuable information that can help you in your jobs. So sign up. We’re doing this for you.”

Fix-it Guides and non-specialist corrections workshops planned

The IRS has put out a very well received Fix-It Guide for 401(k) plans (available on the plan corrections website) that includes a chart of common mistakes, and explanations detailing how to find them, how to fix them, and how to prevent them in the future.

Future Fix-It Guides will cover SEPs, SIMPLEs and Code Sec. 403(b) plans. The guides will be used as the basis for planned corrections workshops aimed at non-specialist practitioners.