The IRS launched a new pilot program this month that will greatly benefit benefit plan sponsors if they act quickly. The new 90-Day Pre-Review Compliance Pilot Program not only gives plan sponsors the opportunity to correct plan errors before an IRS review, but may also reduce IRS penalties or reduce the scope of an IRS review. However, this program is only beneficial if you are aware of the program and are able to respond within 90 days.
Prior to the June announcement, plan sponsors who received notice of an upcoming IRS review could not correct plan errors through the EPCRS Self-Correction Program (“SCP”) or submit a new claim through the through the EPCRS Voluntary Correction Program (“VCP”). The only remaining available remediation option is the EPCRS Audit Closure Agreement Program (“Audit CAP”). The audit CAP allows the plan sponsor to enter into a closure agreement with the IRS regarding plan failure instead of facing disqualification from the plan, but this came with an unpredictable sanction from the CAP of auditing. The IRS bases Audit CAP penalties on relevant facts and circumstances, such as the number and type of employees affected by the failure, the period during which the failure occurred, the reason for the failure, etc., but the penalties were often significant. .
The new pilot program offers several benefits to plan sponsors. Plan sponsors now have a 90-day window to review their plan’s document and operations if they receive a letter that their pension plan has been selected for an upcoming review. Any errors discovered during the review can still be corrected via SCP if corrected within the 90 day window. If the error cannot be corrected by SCP, the plan sponsor may request a termination agreement. Instead of the uncertain audit CAP penalty, the VCP fee structure will be used to determine the penalty amount (based on plan size and capped at a maximum of $3,500).
Plan sponsors correcting under the pilot program must respond to the screening letter with the required documentation to support the correction. The IRS will review the correction and issue a closure letter or conduct a limited or full review. The IRS hasn’t disclosed its procedures for determining when a closure letter or review will be issued after the corrections, but any chance of receiving a successful full review is a chance to save time and money. money to the plan sponsor.
The benefits of the pilot program are great for plan sponsors, but only if they act quickly. If you receive the 90-day pre-review letter, you must contact one of our benefits attorneys to begin a review of your plan document and operations. We have a wealth of knowledge and experience in IRS audits. We know the common qualification errors that occur during an IRS examination, so we can help you uncover any potential errors and resolve those errors before the 90-day window ends.
We also provide this service even if you do not receive a letter. An error is almost always less costly the sooner it is discovered, so please contact us if you would like us to proactively check your plan for compliance. Although large plans are subject to an annual independent audit of their finances, the audit focuses on finances and is not intended to catch all operational errors.
The pilot program does not have a stated end date, but the IRS will review the program’s effectiveness and determine whether it will continue on a permanent basis as part of its overall compliance strategy.