Skip to main content

IRS outlines priorities for 2021

The Internal Revenue Service’s Tax Exempt and Government Entities division issued a “Program Letter” that outlines its priorities for the 2021 fiscal year. The letter supplements the “Fiscal Year 2020 Compliance Program Letter,” which outlines the IRS’ examination initiatives.

While the letters list several initiatives, among particular interest with respect to retirement plans are the following:

Internal Revenue Code Section 403(b)/457 Plans: Examine 403(b) plans for universal availability, excessive contributions and proper use of catch-up contributions under IRC Section 414(v); and examine 457(b) plans for excessive contributions and proper use of the special three-year catch-up contribution rule. This strategy began in FY 2020.

Small exempt organizations that sponsor retirement plans: Review retirement plans of small exempt organizations to determine whether the plan investments are properly administered, whether there are any party-in-interest transactions in the plan trust and whether any participant loans violate IRC Section 72(p).

Worker classification:
  • Tax-exempt entities: Review worker classification to ensure taxpayers aren’t reducing their tax burden by incorrectly treating workers as independent contractors instead of employees.
  • 401(k) focus: Review retirement plans of employers that were determined to have misclassified employees as independent contractors, to determine if coverage requirements of the IRC are satisfied.
Retirement plan participant loans: Ensure that participant loans comply with IRC Section 72(p) rules on maximum loan balances and IRC Section 72(t) re-payment rules for early distributions before age 59½ and verify whether participant loans of retirement plans that hold a high percentage of participant loans to total assets of the trust are being repaid timely if the loan balance remains consistent or increases for more than one year.

Required minimum distributions in large defined benefit plans: Ensure retirement plan sponsors comply with IRC Section 401(a)(9) to begin distribution of benefits by the required beginning date.

The IRS will utilize the examination process to check these areas. Once a plan is selected for audit, if any error found is deemed “significant,” generally the only recourse is to enter into an Audit Closing Agreement Program with the IRS. The Audit CAP not only requires the plan sponsor to make the correction but also imposes a sanction payable to the agency. While the plan sponsor may negotiate the amount of the sanction, the best recourse is to be proactive, ensure your plan is in compliance with all rules and regulations and make any corrections if needed ahead of any examination by the IRS.

If you have any questions or would like to begin talking to a retirement plan advisor, please get in touch by email or by calling (800) 388-1963.

Popular posts from this blog

Employee Benefits Offerings: What Perks Can You Add?

Employee benefits can play a crucial role in attracting and retaining top talent. Beyond compensation and bonuses, offering a variety of perks can significantly enhance employee satisfaction and productivity. But what should you include in your employee benefits offerings?   What are employee benefits?   Employee benefits encompass compensation, bonuses and various perks outside an employee's wage. By offering flexible employee benefits, you can improve employee productivity and loyalty while attracting and retaining talented candidates.   Personalized benefits examples   The type of benefits offered can vary by industry. We've compiled some of the most popular options to help you explore possible employee benefits strategies .  1. Social opportunities   Employee perks don't always have to be tied to a benefits package. Sometimes, the best way to engage your employees can be through social opportunities. Group activities can help im...
Read more

What is Risk Management? 4 Key Topics to Know

Understanding risk management in retirement programs  Managing a retirement program is complex, with multiple layers of risk. For organizations and their leadership, understanding and mitigating these risks is crucial to ensuring the long-term success and reliability of these programs.   It often leaves human resource professionals, employers and program administrators questioning, "What is risk management, and how can we excel at it?"  This blog post explores the various aspects of risk management in retirement program administration and provides actionable insights to help organizations better manage these risks.  The importance of risk management  Retirement programs are designed to benefit participants and beneficiaries, but they come with their own set of risks. These risks can be broadly categorized into four main topics:  Fees  Administration  Investments  Cybersecurity  Each of these topics requires meticulous attention and ...
Read more

Innovative employee retention strategies: 9 fresh ideas

Employee engagement and retention are pivotal in every sector, but they carry even more weight in the not-for-profit space, where resources are often limited. High turnover can be both costly and disruptive, impacting productivity and damaging morale. In an era of workforce evolution, to effectively retain their top talent, organizations must explore innovative employee retention strategies that go beyond conventional methods.  Engaged employees are distinguished by their higher productivity, motivation and loyalty, and they are more likely to stay with a company for the long term. Gallup recently updated its research article, The Benefits of Employee Engagement , finding that "low engagement teams typically endure turnover rates that are 18% to 43% higher than highly engaged teams."  In addition to turnover, disengaged employees negatively impact a company's financial health, with turnover costs averaging six to nine months of the departed employee's salary, accordin...
Read more