Pension Plan Sponsors Should Prepare for New IRS Screening Pilot Program

In June 2022, the IRS launched a pre-examination pilot program for pension plans that could help employers avoid costly penalties. The program aims to reduce the burden and time spent on pension plan audits, which are typically a time-consuming undertaking for plan sponsors. The program should ultimately be good news for plan sponsors in terms of financial penalties and, presumably, a more efficient verification process.

The pre-examination program

As part of this program, the IRS will notify pension plan sponsors that the plan will be subject to an upcoming audit. Plan sponsors will then have a 90-day window to review, identify and, in certain circumstances, correct any plan documents or operational compliance errors they discover. Plans that don’t respond within the 90-day window will be subject to a full review, so it’s important for employers to quickly identify and address any issues.

During this 90-day window, plan sponsors may self-correct any plan document or operational error eligible for self-correction under the guidelines of the IRS’ EPCRS Self-Correction Program, which was recently updated in the 2021-30 revenue procedure.

Plan sponsors can request closure for any errors that are not eligible for self-correction. Notably, however, if an error is self-identified through this pilot program, the IRS will use the Voluntary Correction Program (VCP) fee structure under the EPCRS to determine the amount of any applicable financial penalty, rather than the audit closure agreement program (CAP audit) fee typically assessed during a comprehensive review. VCP fees are significantly lower than Audit CAP fees.

Once the IRS reviews the plan’s response to the pre-review investigation, it will issue a closure letter if it is satisfied with the plan’s actions or determine whether it will conduct a limited or full audit.

Advantages over the standard audit process

Before the IRS implemented this pilot program, self-correction was only available to audited plans in limited circumstances. Plans under audit were not eligible for correction under the VCP program. Thus, the program gives employers an additional chance to identify operational errors and correct them themselves after the plan has been targeted for verification.

Steps for employers who receive a pre-examination letter

  • Immediately contact ERISA attorney and consultants to assist with the plan document and operational review;
  • Identify any potential plan document and/or operational errors;
  • Work with the ERISA attorney to determine the appropriate correction available for any errors identified;
  • Work with the ERISA attorney to respond to the IRS letter within the 90 day window.


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