Baseball season has just started, and retirement plan auditing season will soon kick into high gear. Many plan sponsors don’t see the value of a good auditor; they just see the audit as a cost of doing business. That’s too bad because these days when a plan sponsor becomes aware of an operational problem in the plan, it’s frequently the auditor who discovers it. The longer a plan mistake goes on without being caught, the more expensive it is to fix it, so a good auditor can save a plan sponsor a lot of money by catching errors sooner than later. Unfortunately, like with any other business, not everyone doing benefit plan audits is good at it. The Department of Labor released a study in 2015 that found that the fewer plan audits a CPA firm does, the more likely it is that there will be significant deficiencies in its audit process. That, of course, increases the risk to the plan and its sponsor. An updated study should be released this year, and the results aren’t expected to be much better.

Last year in its Employee Plans News (the June 3, 2022, issue), via an online post with very few details, the IRS announced a new pilot program that gives plan sponsors an advance warning of a potential audit. The IRS will send the sponsor a notice that it intends to audit the plan, and the sponsor has 90 days to look into the plan’s document and operational compliance and report its findings back to the IRS. From there, the IRS can decide whether it will go ahead with a full audit, a limited audit, or no audit. The advantage of this pilot program is that any issues that the plan sponsor discovers during the 90-day period can be fixed via the Employee Plans Compliance Resolution System (EPCRS) using either the Self-Correction or the Voluntary Correction Program. This approach is much less expensive than paying the penalties that the IRS would assess if they discovered the issue during an audit.

The 90-day window seems like a decent amount of time to get a handle on whether the plan has any operational problems, but it doesn’t consider how long it takes to prepare for and perform the annual plan audit. This makes having a good plan auditor more important than ever. A sponsor who gets a pre-audit notice from the IRS will be in a much better place because the auditors will have looked closely at how the plan runs every year. It’s also a good idea for a sponsor who gets one of these notices to, if possible, bring the auditor back in during those 90 days to do some additional testing of the plan’s operations. Needless to say, the plan’s legal counsel needs to be involved too.

It was already smart to hire a CPA firm with a lot of knowledge and experience in benefit plan audits – now, it could help save a plan sponsor from an IRS audit.

If you have questions or need assistance, please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.

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Photo of M. John Burgess M. John Burgess

A certified public accountant and attorney with an extensive tax and accounting background including experience as an auditor with a large accounting firm, John brings a practical approach to the legal counsel he provides to employee benefit plan committees, including 401(k) plan committees…

A certified public accountant and attorney with an extensive tax and accounting background including experience as an auditor with a large accounting firm, John brings a practical approach to the legal counsel he provides to employee benefit plan committees, including 401(k) plan committees, regarding their fiduciary responsibilities. Clients appreciate his ability to provide a comprehensive view of their specific benefit plans and how they affect their business. Business owners and executives leverage John’s nearly 20 years of experience in employee benefits, executive compensation matters, and employee stock ownership plans (ESOPs). John regularly represents clients before the Internal Revenue Service (IRS) and department of Labor (DOL) in benefits matters.

A significant portion of John’s practice is centered on establishing and maintaining ESOPs for a nationwide client base, including plan design, distribution policies, the structure and implementation of ESOP transactions and administration matters. John also regularly represents ESOP trustees in purchase and sale transactions. In 2020, he helped to establish the Florida Center for Employee Ownership, a statewide resource for business owners who are considering a transition of the ownership of a business to its employees and is a member of its Board of Directors. He speaks regularly on ESOP issues at national and regional conferences.

John plays a critical role in navigating the complex and potentially risky issues that can arise during an M&A transaction. Clients draw on his benefits issues experience, including assistance with the due diligence on benefit plans sponsored by an acquired company. He routinely counsels clients on plan documentation, plan qualification, and other benefits issues, including tax and fiduciary matters.

Having worked with plans of all sizes, ranging from those sponsored by small, local companies to large, multi-national corporations, John has guided business owners, executives, and other senior managers with a range of employee benefits. Employers at all stages, from startups to public companies, seek John for advice and counsel on how to establish and maintain equity-based compensation programs for executives and employees.

Clients value John’s significant experience assisting in the correction of errors in both qualified and non-qualified retirement plans. This includes representing clients in Voluntary Compliance Program applications before the IRS, providing the opportunity to maintain compliance with IRS regulations and the potential for saving significant penalties and fees. He regularly assists clients with executive employment agreements, severance agreements, change in control agreements and non-qualified deferred compensation plans, including compliance with Internal Revenue Code Sections 409A, 457(b) and 457(f).