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The 401(k) plan compliance area and international issues are among the top priorities for IRS Employee Plans Examinations (EP Exams), Monika Templeman, director, EP Exams, said at the Washington Update opening panel of the Enrolled Retirement Plan Agents (ERPA) Conference in Washington, DC, on June 7, 2012. Templeman focused on the importance of transparency in these programs, which would foster a better working relationship between the government and employee plans community. "It's very crucial that we work together as partners in compliance, and that we have a way to ensure that the private system has the integrity and the assistance that it needs to not only survive, but to be enhanced," she said.
In 2010, the Employee Plan Compliance Unit (EPCU) sent out a comprehensive questionnaire to approximately 1,200 401(k) plan sponsors. "The questionnaire was so comprehensive that it actually is a really good review of the issues that can be raised in 401(k) plans," said Rhonda Migdail, EP Technical Guidance and Quality Assurance, IRS Office of Employee Plans.
Migdail encouraged plans that had not received the questionnaire to look at it online to increase their understanding of 401(k) compliance issues for internal audit purposes. Migdail also noted that the interim report on the questionnaire (based on a 98% response rate) was issued on February 3, 2012, and is available online.
Templeman noted that the questionnaire indicated that only 35% of respondents were not aware of the Employee Plans Compliance Resolution Systems (EPCRS) and only 57% of respondents were aware of the free IRS web-based tools. "We need your help to promote our EPCRS process to have people self-correct and come into voluntary compliance, which is the best way to fix errors," Templeman told the conference.
Templeman and Migdail encouraged plan sponsors to practice self-correction of their plans, rather than wait for an audit, which would be more costly. To quickly check up on the compliance level of an employee plan, sponsors have access to a number of free IRS materials. For example, the IRS Fix-It Guides are available on the http://www.irs.gov website. "They basically encompass all the common errors found on audit," said Migdail. The Fix-It Guides give advice on how to find, fix and avoid compliance mistakes. Templeman added that the IRS is planning to release a new Fix-It Guide for 403(b) plans along with its guidance on "pre-approved" Code Sec. 403(b) plans.
The EPCU has just completed two international projects, one on domestic trusts and the second on the Code Sec. 72(t) rules. The EPCU project on domestic trusts involved sending contact letters to a sampling of employers with certain Employer Identification Number (EINs) that had indicated on Forms W-2, Wage and Tax Statement, that their employees were covered by a qualified retirement plan. Templeman stated that 95% of the respondents found that the vast majority of the foreign companies understood the rules regarding the need to maintain domestic trusts and that substantive decisions must be under the control of persons in the United States.
"The second project didn't have such a silver lining," said Templeman of the project on the Code Sec. 72(t) tax. The EPCU sent letters to eight specific geographic areas across the world and found that there is a lack of understanding concerning the need to pay tax on worldwide income, specifically for early distributions subject to the tax.
Templeman stated that EP Exams is collaborating with the IRS Large Business & International (LB&I) Division to provide more training on international employee plan issues. Migdail predicted more educational materials on global issues will appear on the IRS website in the future.
Source: Washington Update panel presentation by Monika Templeman, director, EP Exams, Enrolled Retirement Plan Agents (ERPA) Conference, June 7, 2012.
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