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IRS Audits – On the RISE for Retirement Plans.

IRS Audits – On the RISE for Retirement Plans. FERMA Summer Conference July 2013 Sarasota, FL. IRS Audit Facts. IRS Audits – 403(b), 457(b), 401(a) and 401(k) Plans Florida – 5 active Nationwide - 16 active Current years under examination 2010- 11. IRS Audit Facts.

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IRS Audits – On the RISE for Retirement Plans.

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  1. IRS Audits – On the RISE for Retirement Plans. FERMA Summer Conference July 2013 Sarasota, FL

  2. IRS Audit Facts • IRS Audits – 403(b), 457(b), 401(a) and 401(k) Plans • Florida – 5 active • Nationwide - 16 active • Current years under examination 2010- 11

  3. IRS Audit Facts • Notification by letter – regular mail • Problem: Sent to whom? Unrelated department? • Notify all of possibility in order to re-route and notify TPA • Followed by multiple Information Document Requests -(IDR’s) • TIME LIMIT FOR RESPONSES – usually three weeks • Submit Form 2848 – Authorization to represent

  4. What are they looking for? • Plan Documents for ALL Plans Maintained - Updated • Eligibility and Participation – all employee classes • Evidence of Delivery of Employee Communications regarding Eligibility and Enrollment Instructions • Contributions that appear to exceed limits

  5. IRS Audit Facts • Remittance files by each payroll • Must match Salary Reduction Agreement on file for each payroll period • Contribution deposit files from providers • Must match remittance files and be timely

  6. What are they looking for? • Coordination of contribution limits between separate plans (I.e. 403(b) and 401(k)) • Employer contributions (especially subject to employment contracts) • Delivery of annual notices to employees including method of delivery • Participation statistics (reasons for low participation)

  7. IRS Audit Facts • Additional requests include completion of an employer questionnaire • Policies and Procedures (HR, Benefits, payroll, etc.) • Staff interviews – new employee orientation, materials given to Subs, etc.

  8. IRS Audit trends • Why is IRS concerned with participation statistics? • Federal initiatives and legislative action promoting participation • Government Accounting Office (GAO) 10/2009 Report • “Automatic Enrollment Shows Promise…,” • Actions by the IRS and DOL to allow and encourage enrollment and participation

  9. Trends – Retirement Plans • In 1998, the IRS stated that a plan sponsor could automatically enroll newly hired employees and, in 2000, clarified that automatic enrollment is permissible for current employees that have not enrolled.

  10. Trends – Retirement Plans • In September 2009, the Department of the Treasury announced IRS actions designed to further promote automatic enrollment and the use of automatic enrollment policies. • WHY?

  11. Trends – retirement plans • 48% of the total U.S. workforce does not participate in an employer-sponsored retirement plan. • Increasing challenges for Social Security and State Retirement Systems. • Congressional recognition of future costs associated with inadequate long-term savings for workers approaching retirement age.

  12. Facts – 403(b) and 457(b) Plans • In place in Florida school districts since 1960’s. • Average participation rate is 29% • Average account balance is $31,000 • Therefore, the majority of the remaining 71% of current employees is dependent on FRS and Social Security for retirement income.

  13. Facts – 403(b) and 457(b) Plans • Therefore, the #1 reason for working past normal retirement age is financial insecurity . • Debt, health insurance costs, ongoing dependent support, etc. • Employee Problem!/Employer Problem!

  14. Facts – 403(b) and 457(b) Plans • Why is participation so low? • Lack of sufficient income to save? NO • General Economic Issues? NO • Behavioral Economics YES • Procrastination and tendency to follow the path that does not require an active decision. • Inability to conceive of long-term savings goals (beyond 5 years) • Short –term savings - higher percentage • Vacations, weddings, etc.

  15. Facts – 403(b) and 457(b) Plans • Historical Challenge for employees: • Decide (on their own) to actively participate. • Save – go home with less cash • Decide how much do they want to save? • Decide which Investment Provider they want?

  16. Trends – Retirement PLans • Future Solution: Employer will present all employees with the following message: • “You are eligible to participate in our retirement plan and will automatically have an account beginning at _% of salary unless you elect not to participate this year. You have 90 days to make this election in the event that you choose not to participate.”

  17. Trends – retirement plans Best Solution: • Default or “Core” investment product. • Must be neutral to other Investment Providers in the Plan. • Must guarantee principal • Must be fully liquid allowing transfers out to other Investment Providers • Must be non-commissionable • Must be institutionally priced

  18. Employer Goals • Maintain Existing Participation in the Retirement Plans • Increase Participation in Retirement Plans • Maintain a Suitable Array of Investment Products and Services • Maintain Access to Plan Provisions for all Participants (loans, hardship withdrawals, etc.) • Create a Long-term Strategy to Empower Employees to: • Save • Attain Financial Security During Their Career • Retire “ONTIME”

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