October 17, 2016

Large Pension and 403(b) Plans Under IRS Scrutiny: What Are the Red-Flag Issues?

The Tax Exempt and Governmental Entities (TEGE) division of the Internal Revenue Service (IRS) has once again identified large plans and 403(b) plans as an examination priority in its Work Plan for Fiscal Year 2017, which began October 1, 2016. It states that distributions (for large plans) and universal availability (for 403(b) plans) will be areas of special interest in examinations this Fiscal Year.

The 2017 Work Plan also provides information about the most common issues identified in the last year’s (FY 2016) examinations. Of the 211 large case examinations closed so far, the most common issues were:

  • Failure to pay out minimum required distributions;
  • Incorrect benefit calculations;
  • Joint and survivor elections;
  • Improper allocation of contributions; and
  • Exceeding the maximum deduction allowable under Internal Revenue Code Section 404.

Of the 193 403(b) examinations closed so far, the most common issues were:

  • Universal availability (coverage for salary deferrals);
  • Contribution limitations (IRC 414(v), age 50 catch-up and 15-year special catch-up); and
  • Hardship withdrawals.

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