Michael A. Webb, Vice President, Retirement Plan Services, Cammack LaRhette Consulting, answers:
Sounds like you were one of the lucky 200 employers that received one of this initial batch of letters from the Internal Revenue Service (IRS); 200 were expected to be sent by 9/30/13, with an additional 200 sent by 9/30/2014 (see “The IRS457(b) Compliance Check”).
The good news is the compliance questionnaire is NOT an audit; audits are far more comprehensive than a 10-item questionnaire Having said that, the questionnaire should not be taken lightly; a failure to respond will most likely result in an audit, as will an inadequate response, or a response which indicates that plan failures may be present. In responding to the letter the Experts suggest you work closely with benefits counsel familiar with such matters in responding to the questions for two primary reasons:
a. Some provisions of the regulatory guidance governing 457(b) plans (such as the precise definition of “select management of management or highly compensated employees” eligible for the plan) are not crystal clear.
b. Unlike the Employee Plans Compliance Resolution System (EPCRS) program that exists for 403(b) and other qualified plan defects, there is no formal correction program for correction of 457(b) plan defects. However, the IRS has stated that corrections relating to IRC 457(b) will be accepted by the IRS on a provisional basis outside of EPCRS, through standards that are similar to that program.
Finally, you should make certain you pay attention to the date of the correspondence from the IRS. Sponsors have only 15 days from the date of the letter to respond. We have received reports that some sponsors have not actually received the letter until a few days before it was due for response. In this case, if a plan sponsor is unable to properly respond to the questions in such a short period of time, a request for extension should be made to the contact in the letter (generally, the IRS has been flexible in such circumstances).
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.