Compliance October 17, 2018
IRS Identifies Retirement Plan Compliance Strategies for 2019
The agency will give greater scrutiny to retirement plan distributions and 403(b) universal availability rules, among other things.
Reported by Rebecca Moore
A Program Letter from the Tax Exempt & Government Entities (TE/GE) Business Operating Division of the IRS offers a heads up to what retirement plan sponsors can expect from the IRS in 2019.
Strategies approved for the Employee Plans (EP) division include:
- Distributions: verify that plans are following correct distribution processes and procedures and that participants are receiving correct distribution amounts;
- Form 5500, Annual Return/Report of Employee Benefit Plan, and Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, stop filers: contact employers sponsoring plans that did not file one or more required returns;
- IRC Section 403(b)/457 plans: examine 403(b) plans for universal availability, excessive contributions and proper use of catch-up contributions under IRC Section 414(v); and 457(b) plans for excessive contributions and proper use of the special three-year catch-up contribution rule;
- Small plans with large assets: determine whether smaller plans with trusts holding large assets have taken deductions on Form 1120, U.S. Corporation Income Tax Return, exceeding IRC Section 404 limitations;
- Simplified Employee Pension (SEP) plans: determine whether accounts violated maximum participant rules, failed to meet statutory and matched employer contribution requirements, and/or failed to meet IRC Section 416(i)(6) top-heavy requirements; and
- Terminated cash balance plans: examine terminated plans with cash balance features that may have exceeded IRC Section 415 limitations or generated a reversion which is subject to an excise tax.
Strategies approved specifically for tax-exempt organizations include:
- Previous for-profit: focus on organizations formerly operated as for-profit entities prior to their conversion to Internal Revenue Code (IRC) Section 501(c)(3) organizations;
- Self-dealing by private foundations: focus on organizations with loans to disqualified persons;
- Early retirement incentive plans: determine whether federal, state or local governmental entities that provide cash (and other) options to employees as an incentive for early retirement have applied proper tax treatment to these benefits; and
- Worker classification (misclassified workers): determine whether misclassified workers result in incorrectly treating employees as independent contractors.