IRS Employee Plans Examination Process

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

In my previous blog, I discussed the oversight responsibilities of the IRS and Department of Labor over 401(k) plans, and what to expect if your plan is selected for an audit. One type of audit you may encounter is an IRS Employee Plan Examination, which is essentially designed to identify areas of noncompliance, develop corrective strategies, and assist in the implementation of those strategies. So what happens if your plan is selected for examination?

If your plan is selected, an agent will notify you via phone or letter. After the initial contact, a letter is sent with a detailed list of items that you will be required to provide for the examination. At this time, if you choose to have representation (attorney, accountant, enrolled agent or actuary), you must provide the IRS written authorization. Examinations can vary between a complete review of your plan’s operations or they can just focus on specific areas, such as:

• Eligibility and participation
• Vesting
• Discrimination
• Contributions
• Distributions
• Trust activities and documents
• Plan documents
• Returns and filings

The examination will usually begin with you explaining the plan’s administration procedures. The examiner will then perform tests and analysis until it is reasonably certain that the examination requirements have been fulfilled. At the conclusion of fieldwork, the examiner will explain the areas that require attention or corrective actions. A closing letter is sent that details the conclusions of the examination. Any unresolved issues or qualification failures are identified in the closing letter, as well as an explanation of the EP Compliance Resolution System, which usually corrects most qualification failures.

Joe Goodmiller