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IRS Announces New “Pre-Audit” Pilot Program for Retirement Plans IRS Announces New “Pre-Audit” Pilot Program for Retirement Plans

IRS Announces New “Pre-Audit” Pilot Program for Retirement Plans

On June 3, 2022, the IRS Employee Plans division announced a new pilot program for retirement plans beginning in June 2022 (the “Pilot Program”). Under the new Pilot Program, the IRS will notify retirement plan sponsors 90 days in advance that their plan has been selected for an audit (a “Pre-Audit Letter”). The plan sponsor will have 90 days to review its plan documents and plan operations and to correct any compliance issues that may be discovered. The Pilot Program is intended to promote compliance while reducing audit costs.  

The IRS announcement does not indicate whether all retirement plans selected for an audit will be offered the Pilot Program. Additionally, while not explicitly stated, it appears that the Pilot Program will apply to IRS examinations of both IRC 401(a) and 403(b) retirement plans. 

The Pilot Program has three main features:
  • Advance Notice by an IRS Pre-Audit Letter: The IRS will give 90 days’ advance written notice to plan sponsors that their retirement plans have been selected for an upcoming audit. The Pre-Audit Letter may identify a specific focus of the audit, such as compliance with the 415(c) limits or the required minimum distribution rules. The Pilot Program indicates that if the plan sponsor does not respond (or does not adequately respond) to the Pre-Audit Letter, the IRS will likely move forward with scheduling the audit. However, if the plan sponsor responds to the Pre-Audit Letter, the IRS will determine whether to issue a closing letter based on the information supplied by the plan sponsor or to conduct a limited or full scope audit. At this point, the IRS has not provided guidelines describing the criteria that will be used to make a determination as to whether to proceed with an audit.  
  • Self-Correction During the 90-Day Review Period: The IRS encourages plan sponsors to use the 90-day period to review their plan documents and operations to confirm they are up to date with current tax laws and that operation accurately reflects the documents. Any errors identified during this 90-day period may be self-corrected by the plan sponsor using the IRS’s self-correction program (SCP), if eligible, or the IRS voluntary correction program (VCP) under the Employee Plans Compliance Resolution System (EPCRS).  
  • Reduced Fees for Certain Errors: The plan sponsor must submit to the IRS a description of the errors and documentation to support any correction action. If the plan sponsor discovers errors that may not be self-corrected, it may correct through the Audit Closing Agreement Program (Audit CAP) and request a closing agreement with the IRS. In that process, the IRS will apply the lower VCP fee structure to determine the sanction amount, rather than the Audit CAP fees that would otherwise apply to errors identified during a routine IRS examination. The fees under the VCP program are currently capped at $3,500. The Audit CAP fees can be significantly higher than the VCP fees. For this reason, the Pilot Program provides an opportunity for plan sponsors to reduce the cost of corrections, especially for errors not eligible for self-correction.
The announcement indicates that the IRS will evaluate the effectiveness of the Pilot Program to reduce overall audit costs and the time spent on examinations and to determine whether it should be made a permanent part of the IRS’s compliance strategy. The IRS did not specify how long the Pilot Program will be initially available to plan sponsors. 

Take Steps to “Comply Now”

Sponsors and administrators who receive a 90-day IRS Pre-Audit Letter should work with their attorneys and other advisors to conduct a self-audit to identify any compliance issues and address them within the 90-day window.

In many cases, conducting a detailed review to identify errors and then fully correcting those errors could take longer than the 90-day period, particularly since plan sponsors will frequently have to rely on recordkeepers and third-party administrators for assistance. For this reason, we strongly recommend that plan sponsors and administrators be proactive and periodically conduct self-audits of their retirement plan documents and operations rather than wait for an IRS Pre-Audit Letter. In addition, plan sponsors should review internal administrative procedures to ensure they are consistent with their plan documents and are being followed. When compliance errors are discovered on self-audit, they can be corrected using the IRS self-correction procedures, if eligible, or voluntary correction procedures under EPCRS.  

Ice Miller’s Comply Now program is modeled after the IRS’s field audit program and can assist employers to conduct an internal compliance self-audit of their retirement plans before receiving notice of an audit or an IRS Pre-Audit Letter. See for more information.

Please contact Gary Blachman, Kathleen Sheil Scheidt, Tara Sciscoe, Chris Sears, Melissa Proffitt, Stan Prybe, Austin Anderson, Shalina Schaefer, Ian Minkin, Rob Gauss, Audra Ferguson-Allen, Lisa Harrison, Lindsay Knowles, Raven Merlau, or the Ice Miller Workplace Solutions attorney with whom you regularly work if you have any questions regarding the IRS Pilot Program, Ice Miller’s Comply Now program, or if you need assistance in reviewing your plan documents and procedures.  

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
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