Transcript Agenda - Today’s Topics 2/23/2011

EXPERTISE
How to Prepare For and Survive a 403(b) Plan Audit
SAVING : INVESTING : PLANNING
Joseph S. Kendy III
Senior Counsel
403(b) IRS Examinations
What are they?
Review of organization’s, books and records in
regard to maintenance of their 403(b) plan
Initial focus –
> Specific tax year
> Potential for expansion
Objective – look for non-compliance
What is the basis of the exam?
It could be any Code Section 403(b) compliance matter:
> Timely plan adoption
> Form compliance
> Operating in accordance with plan terms
> Universal Availability
> Plan terminations
> Form 5500 and internal audit – not applicable to
public schools
Who is examined? & How are they selected?
Education
> Public & Private
> K-12 & Higher Education
Healthcare
> Public & Private
− Tax-exempt only (501(c)(3))
Other 501(c)(3)s
Selection process
> National Plan
> Local Selection
What is the process?
Step 1: They’re coming!
>
Phone call or letter
Step 2: They’re here!
>
The importance of the initial meeting
−
−
−
Assemble the right team
HR / Payroll / Counsel
Have them in the room
Step 3: Information Document Requests (IDRs)
>
Identifies:
−
−
−
>
What documents
What timeline
Negotiating Scope & Requests
Count on additional IDRs
Gathering IDR Documents & Records
Employer’s Records
Investment Provider Records
Other service providers records
>Compliance service provider,
>TPA, etc.
Negotiate scope and delivery
How is the exam resolved?
Examiner’s initial findings
Plan sponsor team review of initial findings
Discussion, modification, & negotiation
Final findings
Closing Agreement (Audit CAP)
Generally involves correction & sanction
Reality Check
What are the odds of an audit?
>
Can vary by location & over time
Is playing “Audit lottery” a good strategy?
>
No!
>
Ignorance isn’t bliss
A lot at stake:
>
>
Your institution
Your participants
IRS compliance activity – doesn’t end here
Compliance through correspondence (The non-exam)
Employee Plans Correspondence Unit (EPCU)
> An Employee Plans activity
> Not to be confused with Exempt Organizations
Extends the reach of limited IRS Resources
> Beware the innocent inquiry from the IRS
The EPCU Process
> Targeted initiatives
> Initial questionnaire and follow-up
EPCU 403(b) Initiatives
K-12 Universal Availability
> Phase I - completed 2009
> Over 5,500 letters sent out:
− 11 exams
− 1,000 identified for potential issues.
Other 403(b) initiatives possible
Main Issues for IRS Activity
Universal Availability
>Potentially significant tax consequences to plan
& participants
Contribution Dollar Limitations
>Records are data driven
Universal Availability Review
Who can be included?
>All common law employees can be eligible
Who can be excluded?
>Employees who work <20 hours/week
>Students may be excluded
− avoid pitfalls of misclassification
>Leased employees & independent contractors
− are never eligible
Effective communication and opportunity needed
Review of 403(b) 2013 and 2014 Contribution Dollar Limits
Overall DC limit: $52,000 for 2014, $51,000 for 2013
Includes elective deferrals (unchanged for 2014)
> Basic: $17,500
> Long term Employer Catch-up, up to: $3,000
> Age 50 catch-up: $5,500
2013 Updates
403(b) prototype program
>Currently found in Revenue Procedure 2013-22
Update to Employee Plans Compliance
Resolution System (EPCRS)
>Currently found in Revenue Procedure 2013-12
>Voluntary Correction Program
>Self Correction
Resources
Published IRS guidance
> Regulations
> Notices
> Revenue Procedures
> Revenue Rulings
Individual rulings and determinations
> Relied on only by recipient
IRS website
(www.irs.gov)
DOL website (for ERISA plans) www.dol.gov
Legal Counsel, Investment Providers,
Other Service Providers
QUESTIONS ?
THANK YOU
SAVING : INVESTING : PLANNING
Securities and investment advisory services are offered by VALIC Financial Advisors, Inc., member FINRA
and an SEC-registered investment advisor.
The information in this presentation is general in nature and may be subject to change. Neither VALIC nor its financial
advisors or other representatives give legal or tax advice. Applicable laws and regulations are complex and subject to
change. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax
penalties. For legal or tax advice concerning your situation, consult your attorney or professional tax advisor.
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