Pension & Benefits News TE/GE FY 2019 Program Letter priorities includes retirement plans
Tuesday, October 30, 2018

TE/GE FY 2019 Program Letter priorities includes retirement plans

By Pension and Benefits Editorial Staff

The IRS has released the Tax Exempt and Government Entities (TE/GE) FY 2019 Program Letter (formerly referred to as a Work Plan), which includes initiatives for Employee Plans (EP). Acting TE/GE Commissioner David W. Horton and Acting TE/GE Deputy Commissioner Robert S. Choi provided an overview of TE/GE’s work plan and priorities for fiscal year (FY) 2019.

The officials noted that, in FY 2019, the IRS expects to expand its use of and its use of secure messaging with taxpayers and practitioners into the Employee Plans (EP) program. The IRS also will continue an ambitious schedule of additional informational videos, articles and outreach events.

As to the IRS’s compliance strategy approach, which is designed to ensure that TE/GE’s examination programs are focused on the highest priority compliance areas to promote effective tax administration, TE/GE gained significant experience, throughout FY 2018, with the issue submission portal, developed compliance strategies and stocked its virtual shelf with approved compliance strategy cases. TE/GE continues to use data and analytics to drive decisions about identifying and addressing existing and emerging high-risk areas of noncompliance to which it will apply optimal resources. TE/GE has partnered with Research, Applied Analytics, and Statistics (RAAS) to design and test data-driven approaches to identify noncompliance in both EO and EP. TE/GE also took some initial steps to introduce new tools to visualize data to make it easier to identify opportunities to enhance its operations throughout TE/GE.

In this new fiscal year, EP will foster compliance through its voluntary corrections program, issue informal guidance in the form of Lists of Required Modifications (LRMs) to assist plan sponsors with plan document compliance, and continue to update Fix-It Guides to assist with operational compliance. EP also will review input from the qualified plans community on the potential expansion of the scope of the determination letter program for amended individually designed plans (IDP) as well as the self-correction of plan qualification failures.

The officials explained that Tax Cuts and Jobs Act (TCJA) will remain a priority in FY 2019. The IRS has completed numerous form revisions, as well as guidance and training related to TCJA, and anticipates more developments in these areas going forward.

FY 2019 compliance program. EP’s compliance work will use compliance strategies, data-driven approaches, referrals, claims and other casework, and compliance checks.

Compliance strategies, which are issues approved by TE/GE’s Compliance Governance Board, identify, prioritize, and allocate resources within TE/GE. Under compliance strategies, EP will: verify proper distribution processes and procedures as well as correct distributions for participants; contact employers sponsoring plans that did not file one or more required Form 5500s; examine 403(b) plans for universal availability, excessive contributions, and proper use of catch-up contributions under Code Sec. 414(v), and 457(b) plans for excessive contributions and proper use of the special three-year catch-contribution rule; determine whether smaller plans with trusts holding large assets have taken deductions on Form 1120 that exceed Code Sec. 404 limitations; determine whether simplified employee pension (SEP) plan accounts violate maximum participant rules, fail to meet statutory and matched employer contributions requirements, and/or fail to meet Code Sec. 416(i)(6) top-heavy requirements; and examine terminated plans with cash balance features that may have exceeded Code Sec. 415 limitations or generated a reversion which is subject to an excise tax.

Data-driven approaches use data, models, and queries to select work based on quantitative criteria, which allows TE/GE to allocate resources that focus on issues that have the greatest impact. Using RAAS collaboration, EP will sample the results of data queries and models to test indicators of noncompliance for various plan types (e.g., profit-sharing, money purchase, 401(k), and defined benefit).

On referral, claims, and other casework, EP will continue to pursue referrals received from internal and external sources that allege possible noncompliance by a retirement plan, to address requests for refunds or credits of overpayments of amounts already assessed and paid, and to address requests from plan sponsors to waive their minimum funding requirement for a plan year, review non-bank trustees to verify that they have satisfied the non-bank trustee regulations, and pursue promoter investigations.

Compliance contacts. Compliance Units are employed to address potential noncompliance, primarily using correspondence contacts known as “compliance checks” and “soft letters.” TE/GE will continue to inform taxpayers via compliance checks and soft letters on issues of noncompliance, while seeking to improve return filings and filing accuracy.

In FY 2019, TE/GE will continue to use compliance checks to determine whether a retirement plan is adhering to recordkeeping and information reporting requirements, concerning:

  • deductions in excess of 25% of compensation;
  • voluntary compliance 150-day compliance statement follow-ups;
  • SEP-IRA plans with required minimum distribution failures; and
  • filers that have stopped filing required Forms 5500/5500-SF.

EP Determinations.  EP will continue to accept initial and terminating individually designed plan applications. EP continues to review input from the qualified plans community on the potential expansion of the scope of the determination letter program for amended individually designed plans. The due date for defined contribution pre-approved plans (PAP) is December 31, 2018. Employee stock ownership plans (ESOPs) will be permitted under the PAP program for the first time.

Voluntary compliance.  EP continues to review input from the qualified plans community on the potential expansion of self-correction of plan qualification failures under the Employee Plans Compliance Resolution System (EPCRS) program. In addition, EP will focus on actuarial letter rulings, 60-day rollover waivers, and technical assistance work for its taxpayers.

SOURCE: Tax Exempt and Government Entities FY 2019 Program Letter.

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