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IRS Initiates Compliance Check of 457(b) Top Hat Plans

Earlier this year, the Internal Revenue
Service (IRS) announced that its Employee Plans Compliance Unit (EPCU) would
begin a compliance check of certain 457(b) plans maintained by
non-governmental, tax-exempt entities. These plans, commonly referred to as “Top
Hat” plans, are frequently offered by tax-exempt organizations in addition to
other qualified retirement plans.

The good news is that the extent of the
compliance check is fairly limited. Letters
and a questionnaire
will be sent to 200 tax-exempt organizations in fiscal
year 2013, and another 200 will be sent in fiscal year 2014. Employers will be
selected for review based on information contained on 2011 Form W-2 and Form

If you receive a compliance check letter from the
IRS, it is important that you respond in a timely fashion (15 days from the date
of the letter) and provide the requested information. Although responding to the
questionnaire is voluntary, failure to do so may result in the IRS initiating an
audit of your plan and/or organization. In those instances where answers to the
questionnaire indicate the plan is not being operated in accordance with the
Internal Revenue Code (IRC), the IRS will notify the plan sponsor of the
corrective actions to be taken, including a possible audit.

Although your
chances of receiving a compliance check letter are fairly small, all employers
who sponsor a Top Hat plan would benefit from reviewing their plans to ensure
they are being operated in accordance with the IRC. This chart highlights some points to examine to make sure your
plan is compliant.

If you have any questions about your organization’s
457(b) Top Hat plan or would like to speak with an advisor about reviewing or
establishing a plan, please contact us at (800) 388-1963 or via e-mail at

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