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Employee Plans Compliance Unit (EPCU) - Completed Projects - Project with Summary Reports - SIMPLE IRA Plan Follow-Up Project

Summary Report

Between February and June of 2006, Employee Plans sent letters to 189,814 employers identified through a review of W-2 information, informing them of an extended opportunity to amend their SIMPLE IRA plans. These letters provided guidance, direction, and relief to plan sponsors who had failed to timely amend their plans previously. Taxpayers who made these amendments by December 31, 2006, received relief from sanctions that normally would have applied to their plans.

Project Benefits and Conclusion

This project allowed EPCU to determine the effectiveness of contacting these sponsors of SIMPLE IRA plans. While a significant number of plans were timely amended (including extension), project results indicate as many as 25% of the amendments may be due to our contacts sent in 2006.

This project identified issues with late amenders and non-amenders, resulting in referrals to the Employee Plan Compliance Resolution system (EPCRS) and to the Examinations division. While most did not list a reason for not amending, some stated they had not amended the plan since its inception.

Project results indicate a significant number of SIMPLE plan terminations have occurred, 22%. While many responses did not state the reason for the termination, several stated they terminated the plan due to a lack of employee participation.

Results

The following tables show the determination made for each contact:

Table 1– Amendment Findings:

Amendment Time Frame Number Of Amendments Percentage of Amendments
Prior to 2006 Contacts 282 75%
After 2006 Contacts 96 25%

A review of the findings for cases closed with additional actions necessary are shown below:

Table 2– Application of Statistical No Change Percentage to Original Data:

Reason For No-Change Percentage Applied Number of Cases Per Applied Percentage
Amended Prior to 2006 Contact 58% 110,092
Plan Terminated 22% 41,759
Amended After 2006 Contact 20% 37,963
Business Sold 1% 1,898

Table 3 – Application of Amendment Findings to Original Data:

Amendment Time Frame Percentage Applied Number of Cases Per Applied Percentage
Prior to 2006 Contacts 75% 142,361
After 2006 Contacts 25% 47,454

Background

The Economic Growth & Tax Relief Reconciliation Act of 2001(EGTRRA) required amendments to SIMPLE plan documents in order to remain in compliance. An examination project on SIMPLE IRA plans, started in January 2005, discovered that a significant number of employers had failed to update their plans for the provisions of EGTRRA. Based on these findings, additional time was granted to employers that previously failed to amend their plan documents for the provisions of EGTRRA. The extension gave employers until December 31, 2006 to adopt a SIMPLE IRA plan document that had been updated for EGTRRA or adopt the most recent version of the IRS model SIMPLE IRA plan (revised August 2005).

Purpose

The purpose of EPCU SIMPLE IRA Follow-up project was to verify compliance in the timely adoption of SIMPLE IRA plan amendments as prescribed by EGTRRA, and to determine the impact of the previous compliance initiative.

Non-compliance could result in losing tax benefits for both the employers sponsoring the plan and the employees participating in them. Non-compliance could also indicate previous compliance initiative was ineffective.

Scope

A statistically valid sample of 600 cases was identified from the 189,814 employers previously contacted. These employers were sent compliance contact letters with an information request (IR) to determine if they were in compliance with the EGTRRA requirements. The questions contained in the IR were:

  1. Has an amendment been made to your plan document to include the provisions of EGTRRA?  If not, was the plan terminated?
  2. From whom and where did you receive the amendment for your plan document?
  3. What was the date your document was amended and who signed it?
  4. Were all eligible employees notified regarding the amended provisions of the plan?
  5. What is the number of employees who work for the plan sponsor and how many of those employees participate in the SIMPLE IRA plan?
Page Last Reviewed or Updated: 18-Aug-2016