>The IRS is currently hiring and training staff for six- to eight- member EPTA audit teams, which will focus on large, single employer, qualified defined benefit and defined contribution plans. The teams will be located in six regions, with the intention of performing 10 to 15 audits per year of large plans – plans with at least 2,500 participants, according to a bulletin released by consulting house The Segal Company.
>Under the EPTA program, the IRS conducts an intensive review of a retirement plan’s form and operation to makes sure the plan’s language meets all legal requirements and operates in accordance with its provisions and the appropriate regulations. Plan sponsors wondering how intense the EPTA large plan audit will be should plan for 200 to 300 staff days to complete the audit process.
>To select plans for audit, the IRS devised a point system that rates plans based on the number of participants, gross assets and the amount of contributions. Additionally, the IRS’ point system looks at:
- type of plan
- any merger or acquisition the employer and plan have been involved in
- employer’s industry, especially those like steel and airlines the IRS has deemed “at risk”
- frequency and results of prior examinations
- referrals from and actions taken by other governmental agencies
- reports in the media.
>The IRS then crunches all the number and determines which plans are most likely to be non-compliant. Those plans will then be selected for EPTAs.
>All of this was brought on after the IRS realized it focused very little effort on examining large plans. This is especially surprising given 60% of all plan participants and 70% of all plan assets are concentrated in retirement plans maintained by only 1% of companies. To remedy the lack of oversight, the IRS determined a special audit program targeted to large plans should be created.
A copy of Segal’s bulletin is available at http://www.segalco.com/publications/bulletins/march04EPTA.pdf.