Читать книгу Auditing Employee Benefit Plans - Josie Hammond - Страница 38

The tax code rules are complex. They require a high level of communication between the parties involved in the administration of the plan and an extremely precise execution of all of the tasks associated with operating a plan. Due to this strenuous environment and the fact that where a plan violation occurs, the tax consequence is to harm the typically innocent participant, rather than the party who made the error, the IRS has developed a comprehensive relief system. The basic goal of the relief system is to place the affected participants in the position that they would have been had the error not occurred.

The Employee Plan Compliance Relief System is currently only applicable to pension plans of all types – defined benefit, defined contribution, and 403(b) plans. It includes three basic relief concepts – self-correction, requested correction, and enforced correction. Self-correction is for minor operational defects, where the employer can unilaterally correct for the error and retain the plan’s exempt status without notifying the IRS. Requested correction applies where the sponsor identifies an issue that is of some substance. The sponsor submits a formal request for relief to the IRS. Sometimes, the correction must be negotiated with the IRS, but at the end of the process, the sponsor will receive a letter from the IRS agreeing that the correction was sufficient to retain the plan’s exempt status. Enforced correction is where the defect is discovered upon IRS audit. There is less flexibility in negotiating these corrections and the plan sponsor is frequently exposed to a penalty in addition to the correction amount.

Some actions can be taken with no cost, other than the cost of correction itself. Other actions require the sponsor to pay a fee to the IRS. This program is documented in Revenue Procedure 2016-51, Section 12. The Pension Protection Act of 2006 authorized the government to continue to improve the correction program to encourage employers to correct defects. In 2015 and 2016, the IRS did revise the program to provide more flexibility on plan correction approaches. Detailed information on the current status of the correction program is available at www.irs.gov/Retirement-Plans/EPCRS-Overview.

Because the Pension Protection Act included a directive from Congress to the IRS to make this relief program even more flexible in order to help sponsors retain the exempt status of their plans, it is likely that the IRS will continue to provide more relief both in terms of the correction process and the items eligible for correction. As such, the auditor needs to be familiar with the most recent version of this ever evolving program.