Pension & Benefits News TE/GE FY 2020 Program Letter priorities includes retirement plans
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Monday, November 18, 2019

TE/GE FY 2020 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 2020 Program Letter, which includes initiatives for Employee Plans (EP). New TE/GE Commissioner Tamera Ripperda provides an overview of TE/GE’s priorities for fiscal year (FY) 2020 and notes that the new TE/GE Deputy Commissioner is Edward T. Killen.

The new Commissioner notes that the entire IRS is engaged in an ambitious drive to “improve efficiency, modernize its systems and business processes, and find ways to better serve taxpayers.” She states that in FY 2020, the IRS will continue to pursue the most egregious noncompliance by evolving the IRS’s technology tools and data analytics. In addition, FY 2020 brings new tax laws passed by Congress that will affect the IRS’s future course—the Taxpayer First Act. The legislation will change not only IRS tax administration processes but possibly the IRS’s future operating structure, she says.

Rippersa also explains that the IRS will continue to look for ways to help taxpayers deal with the many changes made by the Tax Cuts and Jobs Act (TCJA) in FY 2020.

FY 2020 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: for employee stock ownership plans, determine whether the employee stock has been properly valued, the annual allocation of employer stock meets the nondiscrimination requirements, and the employer loans follow the conditions and terms of the plan document; for 403(b) and 457 plans, 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 (this strategy was delayed from FY 2019); for salary reduction simplified employee pension (SARSEP) plans, determine whether the deferral test is met, as well as the participation rule, and the Code Sec. 416 top-heavy contribution requirements; for simplified employee pension (SEP) IRA plans, determine if the plan properly includes all employees who have met the plan’s eligibility requirements, including employees working for related employers; and for terminated cash balance plans, assess whether the plan may have exceeded Code Sec. 415 limitations or generated a reversion that is subject to an excise tax. Ripperda notes that, as more issues are developed and approved, those with a higher priority may potentially replace Compliance Strategies currently described.

Data-driven approaches use data 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 Research, Applied Analytics, & Statistics (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 investigate nonbank trustees to verify that they have satisfied the nonbank 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 2020, TE/GE will continue to use compliance checks to determine whether a retirement plan is adhering to recordkeeping and information reporting requirements, concerning:

  • funding deficiencies;
  • indirect service requirements where employees may have been improperly excluded;
  • missing codes, such as business codes, plan characteristics, etc.;
  • nonfilers of Form 5500-EZ; and
  • filers that have stopped filing required Forms 5500/5500-SF.

EP Determinations. EP will be working with an expanded Employee Plans Determination Letter Program. Rev. Proc. 2019-20  expanded the Program to permit plan sponsors to submit (1) determination letter applications for individually designed statutory hybrid plans for a 12-month period beginning September 1, 2019, and ending August 31, 2020, and (2) determination letter applications for certain individually designed merged plans on an ongoing basis. Projected receipts of 2,000 statutory hybrid plan applications are expected to be filed during this 12-month period. The determinations inventory is expected to be more than double during FY 2020 due to the change to the Determination Letter Program. Also, review of defined contribution pre-approved plans will be completed and opinion letters issued by June 30, 2020.

Voluntary compliance. For FY 2020, EP has voluntary correction applications submitted electronically through Pay.gov that are worked under the Employee Plans Compliance Resolution Program (EPCRS). This year, EP will be training and integrated new hires into the Voluntary Compliance function. 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 2020 Program Letter.

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