EPCU announces 457(b) compliance check project

The IRS Employee Plans Compliance Unit (EPCU) will begin a compliance check project for nonqualified deferred compensation plans for select groups of highly compensated employees, managers, directors or officers. These plans, allowed under Code Sec. 457(b), are often referred to as “top hat” plans. The EPCU plans to send compliance check letters and questionnaires to approximately 200 organizations in IRS fiscal year 2013 (ending September 30, 2013) and another 200 in fiscal year 2014 (ending September 30, 2014) as part of this review.

Project goals

The EPCU’s goals are to:

• learn more about the operation of non-governmental 457(b) plans,

• verify that the plans comply with the Internal Revenue Code requirements,

• identify issues of noncompliance, and

• recommend ways to remove any barriers to compliance.

The EPCU plans to correspond with plan sponsors to solicit information about the characteristics and features of their plans, including contributions and employer and employee eligibility. The EPCU intends to focus on the following issues:

• verify that the deferrals reported on the sponsors’ Forms W-2 represent a 457(b) plan;

• determine if the plan sponsor is eligible to have a 457(b) plan, and, if eligible, whether the sponsor is a governmental unit, exempt from income tax under Code Sec. 501(c), or a “dual status” entity that is both governmental and exempt under 501(c);

• verify that participation in the plan is limited to a select group of highly compensated employees, managers, directors or officers;

• determine whether the plan contains features not permitted in a top hat plan, such as loans, age 50 catch-up provisions, or contributions placed in a trust for the exclusive benefit of participants;

• determine whether unforeseeable emergency distributions have been made.

In instances where a plan isn’t established or operated in accordance with Code Sec. 457(b), the EPCU will inform the sponsor what actions are needed, which may include an audit of the plan or correction under the Voluntary Correction Program.

Source: IRS Employee Plans News, Issue 2013-2, June 24, 2013.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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