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Exam Priorities…With Monika Templeman

Today’s Discussion: Issues on the Employee Plans Compliance Unit's Radar Screen

In each issue, Monika Templeman, Director of EP Examinations, responds to questions and offers insights on retirement plan topics uncovered during audits. You may provide feedback or suggest future topics for discussion by emailing her at:

Monika, your last discussion addressed how plan sponsors should respond to compliance checks sent by the Employee Plans Compliance Unit. What are some of the current issues that EPCU is reviewing?

EPCU’s newest project is confirming higher educational organizations’ compliance with the universal availability rule, which is one of the main errors we find in 403(b) plan examinations. EPCU just completed a 403(b) Universal Availability K-12 Schools Follow-up Project in which we contacted over 5,000 school districts in over 40 states. We found that more than 20% of the plans had universal availability problems, which they voluntarily corrected. This resulted in the inclusion of improperly excluded teachers, school bus drivers, cafeteria workers, janitors and substitute teachers in the plan. We also increased our outreach efforts about the 403(b) universal availability rule.

Another recent EPCU project focuses on Form 5500 series returns that show no plan participants, yet the plan received employer contributions. We’re sending compliance check letters to these sponsors to learn if this information is accurate and, if so, why these plans have no participants, but still have assets and continue to receive contributions.

Additionally, EPCU is requesting information from plan sponsors that terminated their plan, but have plan assets remaining. This could be a violation of Revenue Ruling 89-87, which requires plan assets be distributed as soon as administratively feasible after the stated plan termination date.

EPCU’s Partial Termination/Partial Vesting Project looks at Form 5310 returns that had over a 20% drop in participants from one year to the next to determine if a partial termination occurred and, if so, whether affected plan participants were 100% vested. Because of this project, over 250 participants were 100% vested as required by Revenue Ruling 2007-43.

Another recent EPCU compliance check project is the Form 5500 Non-Filer Project. We contact plan sponsors if their latest Form 5500 return was not marked “final” and they have not filed a subsequent return. EPCU began by selecting returns that were due for the plan year ending January 31, 2010 (originally due August 31 if no extension was filed) and that have still not filed by February 2011. We are finding that not everyone is aware they need to file Form 5500 through EFAST2. Some Form 5500-EZ filers were not aware they must now mail their return to the IRS Campus in Ogden, Utah. Instead, they may have erroneously mailed their Form 5500-EZ to the Department of Labor. Of the over 150 contacts closed, 32% resulted in a filed return.

Finally, the Qualifying Employer Securities Project contacted plan sponsors who reported over 10% of their plan’s net assets were invested in employer securities. We found in 32% of over 150 cases closed to date that the stock is not being valued at fair market value, especially in non-publicly traded companies sponsoring small plans and Rollovers as Business Start-Ups (ROBS) plans.

Is EPCU involved in Employee Plan’s international projects?

Two EPCU projects are focused at improving international compliance. The first project is confirming whether a foreign entity sponsoring a qualified plan maintains a domestic trust. In general, trusts must be administered exclusively in the U.S. and U.S. persons must control substantive decisions. So far, the responses indicate that approximately 95% of foreign companies understand their plans must maintain domestic trusts.

The second project identifies individuals with foreign addresses who failed to report premature distributions subject to the additional 10% early distribution tax under Code §72(t). EPCU sent compliance letters to individuals in every continent except Antarctica. To date, we have determined that global taxpayers are generally unaware they had to file a U.S. tax return to report and pay taxes on their worldwide income and were subject to the additional early distribution tax. International employers and tax preparers don’t appear to be sufficiently knowledgeable of U.S. taxation filing, withholding and reporting requirements. We also found that Form 1099-R payers are inaccurately completing the form for global U.S. taxpayers using their “global” address. As globalization continues to escalate, U.S. citizens must be aware of the tax laws affecting them regardless of their current non-U.S. address.

A new EP International Hacienda Compliance Check Project will begin later this year. It will initially focus on Form 5500 coding to ensure adherence to Puerto Rico or U.S. law.

As projects are completed, we post our findings on the EPCU Web page.

The EPCU appears to be a vital part of your work plan.

Yes, their work enables us to contact more taxpayers using fewer resources; we contact many more taxpayers than we ever could just on examinations alone. Information that EPCU receives helps us because we can share project results internally and externally. Internally, we can select better returns for examinations, resulting in a better chance of contacting a plan sponsor with operational issues. Externally, our findings allow plan sponsors to review their plans and, if necessary, correct errors.

EPCU lists about fifteen projects as “current” on the EPCU Web page. I assume EPCU employees are quite busy.

EPCU is in a constant state of activity. Their work has led me to set up a third group of employees, who work on current projects and brainstorm future ones.

To close this article, I think it would be beneficial to reiterate what happens when a plan sponsor doesn’t respond to an EPCU letter.

Through many different outreach venues, we continue to inform plan sponsors that their failure to answer an EPCU compliance contact will result in further action and quite possibly, a full examination of their plan. Plan sponsors who receive contact letters can email us at to ask for clarification of the request and extensions of time. Remember, an EPCU Compliance Check does not preclude a plan sponsor from using our Voluntary Correction Program, and where feasible, self-correction, to correct plan errors cost-effectively unless the plan is referred for audit. / Retirement Plans Community / Examinations / Articles by the Director of Examinations / Issues on the Employee Plans Compliance Unit's Radar Screen

Page Last Reviewed or Updated: 18-Mar-2014