Yesterday, I attended the Mid-Atlantic Pension Liaison Group meeting in Philadelphia. In attendance were IRS officials, Robert P. Bell, EP Determinations Manager, Gary Runge, Quality Assurance Staff Manager, and Cathy Jones, EP MA Area Manager, as well as a large group of employee benefits practitioners. Some key points of the meeting:
(1) The IRS EP Determinations Division has reorganized again, into 2 Area Managers and Group Managers which are now located in Cincinnati, Ohio, El Monte, California, Atlanta, Georgia, Baltimore, Maryland, Chicago, Illinois, and Brooklyn, New York.
(2) Since the GUST amendment process is winding down, the IRS focus is shifting to examinations (i.e. audits). According to Ms. Jones, examination focus will include 403(b)’s, 457 plans (specifically mentioned were plans of public schools, municipalities, and colleges), collectively bargained plans, multiple employer plans, 401(k)’s, and SARSEPs. They will work on making referrals to EBSA where appropriate, and will assign a group of examiners to focus on large cases (greater than 10,000 employees). Ms. Jones warned that there will be a “learning curve” for examiners in the field since many have previously been assigned to the determination letter process and have never had experience in the examination area.
(3) There is now a second draft of the determination letter white paper (you can access it here). Mr. Bell stated that the focus on the determination letter program now seems to be reduced to three options:
- Maintaining the status quo with certain changes
- Changing to a “staggered remedial amendment period” approach
- A combination of these two approaches, with continuing the present program for master/ prototype and volume submitter plans, but changing to the staggered approach for individually designed plans.
(Mr. Bell stated that the M & P folks like the status quo and the individually designed folks like the staggered approach.) Since Paul Schultz is apparently scheduled to leave the IRS in March, it is unknown whether or not the project will be finished before he leaves.
(4) Mr. Runge was kind enough to admit to the group that of all favorable determination letters issued, 24% of them will have “errors” of some kind. They are working on trying to iron out these problems. In the meantime, all practitioners (who are not doing this already) would be advised to: CAREFULLY READ ALL FAVORABLE DETERMINATION LETTERS ISSUED AND CONTACT THE AGENT IF THERE ARE ERRORS. (A determination letter with the wrong date in it could cause all sorts of thorny problems which I do not have the time to write about here.)
(5) George Brim surprised us all by revealing the following chart (which will soon be published in a Revenue Procedure) and which details what sanctions the IRS will impose if a plan sponsor makes a favorable determination letter application and, in the process, it is discovered that certain amendments are missing. These sanctions are separate and distinct from the compliance fees imposed under EPCRS (as prescribed by Revenue Procedure 2003-44) and are also limited to the determination letter application process. If the missing amendments are discovered in an audit, the IRS stated that the fees would likely be higher. Here is the fee schedule which was given to practitioners:
| IRS Nonamender Fee Schedule | |||||||
|---|---|---|---|---|---|---|---|
| Number of Employees | EGTRRA | GUST | UCA/OBRA | TRA’86 | T/D/R | ERISA | |
| 20 or less | $2,500 | $3,000 | $3,500 | $4,000 | $4,500 | $5,000 | |
| 21-50 | $5,000 | $6,000 | $7,000 | $8,000 | $9,000 | $10,000 | |
| 51-100 | $7,500 | $9,000 | $10,500 | $12,000 | $13,500 | $15,000 | |
| 101-500 | $12,500 | $15,000 | $17,500 | $20,000 | $22,500 | $25,000 | |
| 501-1,000 | $17,500 | $21,000 | $24,500 | $28,000 | $31,500 | $35,000 | |
| 1,001-5,000 | $25,000 | $30,000 | $35,000 | $40,000 | $45,000 | $50,000 | |
| 5,001-10,000 | $32,500 | $39,000 | $45,500 | $52,000 | $58,500 | $65,000 | |
| Greater than 10,000 | $40,000 | 48,000 | $56,000 | $64,000 | $72,000 | $80,000 | |
Please note: These figures were taken from a visual which was hard to read and from my notes which are also hard to read, so there may be some errors. Also, the IRS has not officially published these figures.
Additional note: You do not add together the fees if the plan has missed several amendments. For instance, in a plan with 20 employees or less which has never been amended for ERISA or any subsequent changes in the law, the maximum fee would be $5,000.
“EGTRRA” = the Economic Growth and Tax Relief Reconciliation Act of 2001.
“GUST” = the Uruguay Round Agreements Act (GATT), the Uniformed Services Employment and Reemployment Rights Act (USERRA), the Small Business Job Protection Act (SBJPA), the Taxpayer Relief Act of 1997 (TRA ’97), the IRS Restructuring and Reform Act of 1998 (IRRA ’98) and the Community Renewal Tax Relief Act of 2000 (CRA).
“UCA/OBRA” = the Unemployment Compensation Act of 1992 (UCA) and the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93).
“TRA ’86” = the Tax Reform Act of 1986.
“T/D/R” = the Tax Equity and Fiscal Responsibility Act of 1982, the Deficit Reduction Act of 1983, and the Retirement Equity Act of 1984.
“ERISA” = the Employee Retirement Income Security Act of 1974.