IRS TE/GE Office Issues FY 2018 Work Plan

The IRS Tax Exempt and Government Entities (TE/GE) Office has issued its fiscal year (FY) 2018 work plan. The plan outlines efforts and initiatives the office intends to follow in the new fiscal year. Actions will affect plan applications as well as steps to ensure and improve compliance.

TEGE Commissioner Sunita Lough and Deputy Commissioner David Horton in an opening statement said that to a degree, the plan reflects the “strategic imperatives” of the TE/GE and “is a creative response” to the declining workforce of the TE/GE and IRS overall. It also reflects the approach set for FY 2017, they indicate: “Last year’s program Letter stressed efficiency, effectiveness and transparency as key elements of our endeavors. Those remain our bywords going forward.”

For individually designed plans, the Employee Plans (EP) Determinations office will accept only initial and terminating individually designed plan applications (i.e., no amendments). In the first quarter of FY 2018, EP Determinations will begin receiving applications for defined contribution specimen plans as part of the Pre-Approved Plan (PAP) program. The due date for such plans is Oct. 1, 2018. EP Determinations will issue approval letters for the defined benefit PAP specimen plans in the second quarter.

Compliance

Regarding compliance, TE/GE plans to examine the following:

Mergers/consolidations — plans that have transferred their assets or liabilities to another plan due to a merger or acquisition.

Discrimination — plans that failed to:

• comply with the gateway test or the exception under Treas. Reg. §1.401(a)(4)-8(b);

• pass both the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests;

• properly provide timely notice to participants; and/or

• provide the required safe harbor contribution to all eligible participants.

Participation/coverage — plans that:

• failed to satisfy the minimum age and/or service requirement;

• met statutory requirements in form but failed eligibility in operation; and/or

• allowed ineligible participant(s) to participate.

Distributions — plans that failed to:

• make required distributions under Code Section 401(a)(9);

• distribute per plan terms (either in timing or form); and/or

• distribute the correct benefit amount.

Trust investments in small plans — plans that failed to properly value all assets at fair market value and/or failed to properly reflect all plan assets in the name of the trust (e.g., real estate investments).

Benefit accruals — plans that failed to satisfy Code Section 411(b) accrual rules.

Contributions/earnings allocations — plans that made erroneous allocations of contributions and/or forfeitures due to the use of an incorrect definition of compensation, and/or failed to make all matching contributions per plan terms.

Elective deferrals — plans that failed to withhold the proper amount of elective deferrals per plan terms.

Data-driven approaches — TE/GE will continue to examine various plan types (e.g., profit sharing, money purchase, 401(k)s, defined benefit); it will select returns by sampling the results of data queries and models designed to test indicators of non-compliance.

Referrals, Claims and Other Casework

In this regard, TE/GE plans to do the following:

403(b) and 457 plans — continue to examine plans that:

• failed to meet Universal Availability requirements (i.e., coverage for salary deferrals);

• failed to meet contribution limitations (i.e., Code Section 414(v) — age 50 and/or 15-year special catch-up contributions); and/or

• made improper hardship withdrawals.

IRA plans — continue to examine plans that:

• 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.

Additional casework — continue to address requests from plan sponsors to waive their minimum funding requirement for a plan year, investigate (not examine) Non-Bank Trustees (NBT) to verify that they have satisfied the NBT regulations and pursue promoter investigations.

Compliance Checks

EP will continue to use compliance checks to determine whether a plan is adhering to recordkeeping and information reporting requirements. It will do so concerning:

• plans with partial terminations;

• plans with non-participant loans;

• 403(b) plans;

• 457(b) plans with excess deferrals;

• SEP plans with required minimum distribution failures; and

• SIMPLE IRA plans sponsored by more than 100 employees.