IRS launches 90-day pre-verification window to correct retirement plan errors

The IRS has launched a compliance pilot program that gives plan sponsors a 90-day window before an IRS audit of their tax-based retirement plan, such as a 401(k) or defined benefit plan, to correct any errors. discovery. The program allows participating plans to pay no penalty fees or lesser fees for the voluntary correction of any errors.

The IRS announced the program in its June 3 newsletter on employee plans, accessible on the agency’s Employee News webpage. The pilot program will notify plan sponsors by letter that their retirement plan has been selected for upcoming review, the IRS said. The letter gives plan sponsors a 90-day window to review the document and their plan’s operations to determine if they meet the current requirements of tax laws.

If a plan sponsor does not respond within 90 days, the IRS will contact them to schedule an examination.

The announcement called on plan sponsors to review and find errors in plan documents or transactions, and correct those errors themselves using the IRS.
Voluntary Correction Program (VCP) below
the Employee Plans Compliance Resolution System (EPCRS).

“If you find errors on your exam that aren’t eligible to be self-corrected, you can request a closure agreement,” the IRS said. “We will use the voluntary patch program
fee structure to determine the amount of penalty you pay under a closing agreement. The IRS will review your documentation and determine whether we agree with your findings and whether you have appropriately corrected the errors yourself. We will then issue a closure letter or conduct a limited or full review.”

The program’s goal is “to reduce the burden on taxpayers and reduce the time spent on pension plan reviews,” the IRS explained. “At the end of this pilot project, we will assess its effectiveness and determine whether it should continue to be part of our overall compliance strategy.”

A “welcome development”

The pilot program “is
a welcome development for plan sponsors wishing to ensure that their plans retain their tax status,” wrote Robert Wynne, an attorney in McGuireWoods’ office in Richmond, Va., and Alexia Faraguna, an attorney in the firm’s office in Charlotte, North Carolina.

“Employers who are notified should work promptly with their plan advisors to determine whether there are any compliance issues and, if so, the appropriate corrective action under the EPCRS,” they advised.

What to expect

The Ferenczy Benefits Law Center in Atlanta reviewed a 90-day letter from the IRS that one of its clients had previously received and indicated that the letter recommended sending certain items to the IRS to “prove that your plan is qualified in form and to verify deposits”. These elements included:


  • A signed copy of the plan document and any changes relating to the years under review.

  • Participant allocation schedules, census reports, statements of account, and W-2 forms for the years reviewed.

  • Administrative documents regarding the specific problem that the IRS has identified (in this case, demonstrations that the plan met the limits of Section 415 of the Internal Revenue Code or, if not, that the error has been corrected).

  • Any other documents or explanations that the plan sponsor believes would assist the IRS in its review.

“The letter states that the plan sponsor may send or fax these items, but it also states that the sponsor may send electronic information by ‘other means’ if they contact the reviewer to discuss it,” said the society.

If the plan sponsor does not respond within the 90-day period, “the IRS will simply continue with the normal review process,” Ferenczy’s attorneys said.

They added: “No one knows at this time how accommodating the IRS will be and how commonplace it will be to have no sanction or a VCP level sanction with respect to items that are discovered and disclosed to the during the 90-day period. However, one can only hope that the IRS will make the effort to roll out this pilot program to make it work to reduce everyone’s pain and time.”


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