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CCH® PENSION — 11/18/10

EP's 2011 Work Plan priorities include 401(k), 403(b) plan compliance, international issues

The IRS Employee Plans (EP) Division has released its Fiscal Year 2011 Work Plan which includes its operating priorities for the upcoming year. EP officials met with reporters on November 3, 2010, to discuss the Work Plan and its seven operating priorities.

Most of the priorities are multi-year programs that carried over from FY 2010, "but [now] we are in a different place," EP Director Michael Julianelle explained. EP's overarching goal is to ensure that retirement plans operate in accordance with their terms and are providing benefits to employees, Julianelle said. The office strives to balance service and enforcement through education, guidance and compliance actions.

Operating priorities

The seven EP operating priorities for FY 2011 are:

EP has expanded international presence

EP Examinations has expanded its international presence, working closely with U.S. territories and collaborating with the IRS's Large Business and International Division to improve examination coverage and develop voluntary compliance programs, said Monika Templeman, EP Examinations director. EP Examinations has conducted about 50 dual jurisdiction audits with Puerto Rico and signed a Memorandum of Understanding (MOU) with the Virgin Islands. Templeman foresees more MOUs in the future. EP Examinations has initiated compliance projects to confirm whether domestic trusts are being maintained for foreign plans, to determine whether individuals with foreign addresses have received premature distributions, and to consider rollovers from foreign plans. In addition, EP Examinations has conducted over 20 large-case exams of large plans with international issues.

EP analyzing results of 401(k) questionnaire

401(k) plans are the largest and fastest growing sector within EP, according to Templeman. EP sent a compliance questionnaire to 1,200 plans in May 2010. Although response to the questionnaire was mandatory, it was not an audit, she said. EP is now analyzing the responses and will follow up with the few nonresponders. EP Examinations expects to issue an interim report in 2011, perhaps in the summer, and a final report in the first quarter of 2012. EP is conducting some exams of 401(k) plans, including nonresponders, but the interim report is designed to provide a snapshot of the sector before EP takes further action.

Abusive transactions targeted

EP Examinations is looking at abusive and potentially abusive transactions and is developing proactive strategies for identifying and addressing emerging issues. In addition, the Employee Plans division is conducting promoter investigations to deter promoters from preying on the EP sector and is working with IRS Chief Counsel, other IRS functions and the Department of Justice to stop detrimental promotions.

R&A looking at gov't plans, determination letters, 403(b)s

Andrew Zuckerman, director of EP Rulings and Agreements (R&A) identified three priorities for his office: government plans; the staggered determination letter process; and 403(b) plans. While the IRS's Federal, State and Local Government Unit has prime responsibility for governments, "we're trying to coordinate" responses with them and approach the right people within the governments, Zuckerman said. "Governments have special rules and special needs," he said; they do not operate like the private sector. R&A is taking steps to educate governments about plan requirements and is developing a handbook for government plans.

The staggered determination letter process requires interim amendments when the law changes, Zuckerman noted. This can be burdensome both to the plans and to the IRS, he indicated. R&A began this process five years ago; now, the first set of cycles is coming to an end and it is time to evaluate what worked and what did not work. According to Zuckerman, his office is having a dialogue internally, with the IRS Chief Counsel and with the Treasury, to consider how to restructure the process. R&A has not developed any recommendations yet, he added.

In the 403(b) area, R&A has drafted a revenue procedure for pre-approved plans to get determination letters. After taking comments and making revisions, R&A has submitted this procedure for review, but it has not cleared yet. R&A has also set up a team to develop a revenue procedure for individually-designed plans, so "stay tuned," Zuckerman said.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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