The Internal Revenue Service recently announced that it will be conducting detailed audits on “large” qualified retirement plans, which will include defined contribution plans, defined benefit plans and collectively bargained plans of both types.
If you are a benefits advisor, and your client has a large qualified retirement plan, you need to be able to talk to your client about the new audit program.
The IRS informally defines “large” plans as plans that have at least $50 million in assets and cover 2,500 or more active, retired and separated participants.
The reason for the new focus on auditing large plans is simple: IRS and other governmental statistics reveal that 60% of all plan participants and 70% of all plan assets are in these “large” plans. By concentrating auditing efforts on the big plans, the IRS hopes to maximize its results.
One new aspect of this audit is that the IRS audit team will be larger and more specialized.
The typical IRS Employee Plans Team Audit Program team will have 6 to 8 agents, including a benefits attorney, a benefits specialist, a computer audit specialist, an actuary and other specialists as needed. (Example: an employment tax specialist.) The typical EPTA exam budget for a large plan is expected to use 200 to 300 IRS staff days. This staffing budget will help the EPTA team drill down to a very detailed technical level.
Plan sponsors of targeted plans can take 2 courses of action.
The “head in the sand” approach is to blithely ignore new IRS auditing program. The problem with this approach is that the IRS imposes severe monetary sanctions on plan sponsors when its auditors discover disqualifying defects.