Retirement News

for Employers

Helping Business Owners with Retirement Plans

Internal Revenue Service Tax Exempt and Government Entities

Volume 3, Spring 2006

Inside This Issue

We’re the Big Oh-Two

page 2

Product Profiles - 403(b)

Tax-Sheltered Annuity Pubs

for Sponsor and Participant

page 2

Critical FewPoints...by

Michael Julianelle

(Director, EP Examinations)

page 3

The Filing Cabinet

page 4

Net Gains

page 5

The Fix Is In: Common Plan

Mistakes

page 6

This Way to the Forums

page 6

Calendar of Events

and Deadlines

page 8

“Timing is Everything”

Flyer

page 9

A New and Improved EPCRS

In each edition of our regular “The Fix Is In” column, we say “Mistakes can happen.” We also say

“The IRS can help you correct the problem and retain the benefits of your plan.” And so, on May 5,

we updated this popular program for correcting plan mistakes, known as EPCRS, or the Employee

Plans Compliance Resolution System.

With the issuance of the long-anticipated update, Rev. Proc. 2006-27, the revised EPCRS expands

not only the types of failures that can be corrected under EPCRS but also the allowable correction

methods.

Introducing the updated program, Carol Gold, Director of EP, said, “The ever-changing laws and

regulations covering retirement plans necessitate a correction program that is flexible and responsive to

the needs of plan participants as well as sponsors. The newly-enhanced EPCRS does these things

even better.”

The new revenue procedure makes several significant improvements, including:

• A new correction method that estimates the economic loss to an employee excluded from

participating in a 401(k) or 401(m) plan;

• New correction methods for certain plan loan failures under the Voluntary Correction Program

(VCP);

• Rules on the availability of programs under EPCRS in cases where the plan or plan

sponsor is a party to an abusive tax avoidance transaction;

• A new streamlined submission process and fee under VCP for failures to

amend a plan timely for good faith and interim amendment requirements;

• Reduced VCP compliance fees for SEPs and SIMPLE IRA plans; and

• New various procedural enhancements.

EP encourages all stakeholders to submit their comments and

suggestions. Many of the improvements in the new revenue procedure

were the result of feedback from the retirement community.
Spring 2006 Retirement News for Employers

In conjunction with the issuance of Rev. Proc. 2006-27, EP introduced a new and improved

Corrections page on the Retirement Plans Community web page under the title of

“Correcting Plan Errors.” This new and improved page includes a variety of tools designed

to highlight the changes in the new procedure:

• Summary of Changes: Describes the differences between Rev. Proc. 2006-27

and its predecessor, Rev. Proc. 2003-44.

• Topical Index to Rev. Proc. 2006-27: A detailed index with entries keyed to

rev. proc. section numbers.

• EPCRS Update Presentation: A PowerPoint

 overview of EPCRS.

Look for a new Retirement Plan Correction Programs

CD-ROM to be issued soon, with a comprehensive

overview of the correction programs.

We’re the Big Oh-Two

With this edition, the Retirement News for

Employers celebrates its 2nd birthday. Since we

started publishing way back in aught-five, we’ve

worked on providing you with information that

meets this newsletter’s mission: Helping Business

Owners with Retirement Plans. For example,

through regular articles such as “The Fix Is In:

Common Plan Mistakes” and “Critical

FewPoints,” along with contributions from our

friends at the Department of Labor, we want to

help you better operate your plan.

But, YOU, our subscribers, are the best judges of

whether we have done OUR job. Getting your

feedback is essential to us as we continue to grow

(we’ve nearly quadrupled our subscriber base

since we started). Tell us what information will

best help you operate your business’s retirement

plan. Your ideas and suggestions for future articles

are most welcome. To find out how you can share

with us see “Contacting Employee Plans.”

Product Profiles –

403(b) Tax-Sheltered Annuity

Plan for Sponsor and

403(b) Tax-Sheltered Annuity for

Participant

Congratulation subscribers! In this edition you get a twofer!

We’re profiling two new useful products: 403(b) TaxSheltered Annuity Plan for Sponsor (Publication 4483)

and 403(b) Tax-Sheltered Annuity for Participant

(Publication 4482). As the names suggest, each

publication is similar, but geared toward a different audience.

Both products provide information on 403(b) topics such as

common mistakes and available resources to help you keep

your tax-sheltered annuity healthy.

Topics addressed in the Sponsor publication (Pub 4483) include:

• Qualified Employer;

• Universal Availability;

• Employee Elective Deferral Limits;

• Return of Excess Elective Deferrals and Earnings; and

• Hardship Distribution Requirements.

Topics addressed in the Participant publication (Pub 4482) include:

• Maximum Elective Deferrals;

• Catch-Up Contributions;

• Distributions and Rollovers;

• Loan Limitations; and

• Hardship Requirements.

Both publications can be found at the Retirement Plans Community web page. Each online version

includes links for detailed information on topics in underlined text in the publication. Copies of each

publication can also be ordered by calling (800) TAX-FORM (829-3676). 2
Spring 2006 Retirement News for Employers

Critical FewPoints...by Michael Julianelle (Director, EP

Examinations)

Hello everyone. Before I begin to discuss my thoughts for this month, I want to remind you that

I welcome suggestions for topics you would like me to discuss in these pages. It is very

important to me that I cover the information you would like to see. Please e-mail your

suggestions to RetirementPlanComments@irs.gov. I will do my best to cover your ideas

or concerns in future articles.

In previous newsletters, I discussed with you the impact of abusive tax transactions and how

they jeopardize and taint the private retirement system in America and promote tax evasion in

the Retirement Plans Community. I think it’s a good time for me to update you on where we are

right now with these schemes.

Throughout the different functions within the IRS – EP, Small Business/Self-Employed

(SB/SE), Large and Mid-Sized Business (LMSB) and more – there is a united stance on

proactively deterring promoter schemes and abusive transactions. To encourage

voluntary compliance, on October 27, 2005 the IRS issued Announcement 2005-80,

the Global Settlement Initiative (known as GSI), which encompassed 21 different abusive

transactions.

GSI offered significant reductions on the penalties for these cases in the hope that many

affected taxpayers would volunteer to come in and inform us of their involvement.

Processing the applications submitted under the GSI in Announcement 2005-80 is a top

priority. And, we are also focusing our attentions on those who had the opportunity to

come forward, but did not.

If you’ll recall, my last article mentioned the establishment of the Employee Plans

Compliance Unit (EPCU). This group sent letters to taxpayers with identified abusive

schemes eligible for the GSI. For the ones that did not take advantage of the GSI, we will

be setting up examination appointments. We will be identifying other abusive situations

and setting up examinations on those as well. The LMSB and the SB/SE Divisions are

working with us in EP to identify and put a stop to these abusive schemes.

Plain and simple, the IRS is serious about addressing abusive cases that chose not to come in

for GSI. Please visit the Retirement Plans Community web page to find additional

information on this topic and what you should do if you know about one of these abusive

schemes. Click on “Examinations/Enforcement” then select “EP Abusive Tax Transactions.”

WHAT’S NEXT???

In the next issue, one topic I plan to cover is my policy on the “Place of Audit,” the preferred

location we would like to hold our examination. If you have thoughts about this topic you wish

to convey so I can address them in the article, please e-mail them to

RetirementPlanComments@irs.gov and type “Place of Audit Comments” in the subject

line.

Thank you for reading and enjoy the remainder of your spring season.

How to Subscribe to

Retirement News for

Employers

The Retirement News for

Employers will be issued only

through IRS e-mail. For your

free subscription, please go

to the Retirement Plans

Community web page and

subscribe online by selecting

“Newsletters” under

“Retirement Plan Community

Topics.” All editions of the

Retirement News for

Employers are archived

there.

For your convenience, we

have included Internet links

to referenced materials

throughout the Retirement

News for Employers. These

links are identified by the

blue and underlined text.

3
Spring 2006 Retirement News for Employers

The Filing Cabinet

Forms – you can’t live with them, you can’t live without them. Just like you use forms when running

your business – everything from spreadsheets to receipts to invoices – you also use forms when

dealing with a retirement plan.

Forms & Pubs Update

The new Form 8905, Certification of Intent To Adopt a Pre-approved Plan has been released

and is now available. Adopters of an individually designed plan or pre-approved plan (not

otherwise entitled to the six-year remedial amendment cycle) use this form to request a conversion

of their five-year remedial amendment cycle under Part III of Rev. Proc. 2005-66 to the six-year

remedial amendment cycle under Part IV of the procedure.

Form 8717, User Fee for Employee Plan Determination, Opinion and Advisory Letter

Request is being revised to reflect the changes in user fees mandated by Rev. Proc. 2006-8.

The following forms and publications have recently been

revised and are now available:

• Form 5310, Application for Determination for

 Terminating Plan;

• Form 5310-A, Notice of Plan Merger or Consolidation,

 Spinoff, or Transfer of Plan Assets or Liabilities; Notice

 of Qualified Separate Lines of Business;

• Publication 571, Tax-Sheltered Annuity Plans (403(b)

 Plans) For Employees of Public Schools and Certain

 Tax-Exempt Organizations; and

• Publication 590, Individual Retirement Arrangements

 (IRAs)

All of these forms and publications are available on the

Retirement Plans Community web page by clicking on “EP Forms & Publications.”

And Time Marches On

Before we get too far into the new year, did you know that the IRS has revised its highly popular

Publication 1518, 2006 IRS Tax Calendar for Small Businesses and Self-Employed? The

calendar is filled with helpful hints, general tax information and a listing of the most common tax filing

dates. Each month highlights a new tax tip that will help small businesses during both the tax filing

season and the entire year. You can order a copy by calling (800) TAX-FORM (829-3676).

Disaster-Related Material

In response to the disasters of 2005, the IRS has released the following products:

• Form 8915, Qualified Hurricane Retirement Plan Distributions and Repayments, used

to report distributions and determine the amount included in income.

• Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita,

and Wilma, is a new publication which lists the disaster areas for each hurricane and

explains which areas are eligible for administrative relief from the IRS and which areas

receive special tax breaks under recently enacted provisions of the tax law. The publication

also provides information on how to claim unreimbursed losses, the tax-favored use of

retirement savings, and new rules regarding charitable giving.

New DVD on Identity Theft

Our friends at the Department of the Treasury

have developed a DVD for consumers on how to

recognize identity theft, how to protect against it,

and what to do if victimized.

Copies of “Identity Theft: Outsmarting the

Crooks” may be ordered from the Federal Citizen

Information Center at (888) 878-3526 (or from

the FCIC-05B, P.O. Box 100, Pueblo, CO

81002). Use order number 365NN. Supplies

are limited and there is a $2.00 shipping fee.

4
Spring 2006 Retirement News for Employers

Net Gains

Welcome back to Net Gains, the column devoted to providing you with the latest Retirement

Plans Community web page information. This portion of the IRS web site contains

almost everything you want to know about retirement plans but didn’t know where to find it.

Plan Sponsor/Employer Material

Just for you: All – or at least a lot of – the retirement information designed

and written for employers who have (or are considering having) a

retirement plan. Over the years, our plan sponsor material had become

overgrown and, dare we say, weedy. So we cleaned up the superfluous

material, used more descriptive topics and added more useful links. For

example, topic headings you’ll see include “What Retirement Plans are

Available?” and “Retirement Plan FAQs, FYIs, Tips and Tools.” You’ll

also find more links to more retirement resources from other government

agencies such as DOL, the Social Security Administration, the Small

Business Administration and so much more. We’ll continue adding to,

improving and tweaking the material we have. If you don’t find what you’re

looking for, let us know at RetirementPlanComments@irs.gov and

we’ll get to it.

Correcting Plan Errors

As we mentioned in the cover story, there’s a newly-redesigned page on

Correcting Plan Errors. In conjunction with the new EPCRS revenue

procedure, we now have an even better Correcting page featuring a

variety of tools to help plan sponsors and benefits practitioners alike in

using this popular program, such as:

• Revenue Procedure 2006-27, including a Summary of Changes and a

 Topical Index;

• Voluntary Compliance Program Tools;

• Overview of EPCRS;

• Links to Other EPCRS Resources, EP Forms and Pubs, Other

 Government Retirement Plan Correction Programs; and More.

Check it out. There’s sure to be something there for you.

“Timing is Everything” Archive

If you’re new to the Retirement News for Employers, or if you’re

memory-impaired like us here at the RNE and forgot, check out the

archive of “Timing is Everything” flyers. Each one-page Timing flyer has

plain-language retirement information for employees and plan participants.

The Timing archive is on both the Plan Sponsor/Employer and Plan

Participant/Employee sections on the Retirement Plans Community

web page. And when you go to the online archive, you’ll discover that

the flyers have even more help to offer because we’ve provided links on

each flyer that provide more details about specific retirement plans and

products. As always, we welcome your suggestions about future Timing topics, so drop us a

line at RetirementPlanComments@irs.gov.

CONTACTING

EMPLOYEE PLANS

The Retirement News for Employers welcomes your

comments about this issue and/or your suggestions

for future articles.

Send comments/suggestions to:

EP Customer Education & Outreach

SE:T:EP:CEO

1111 Constitution Avenue, N.W., PE-4C3

Washington, D.C. 20224

or FAX (202) 283-9525

or E-Mail: RetirementPlanComments@irs.gov

For EP Taxpayer Assistance:

For retirement plans technical and procedural

questions:

Please call (877) 829-5500

Or visit the EP Customer Account Services section at

www.irs.gov/ep.

For questions relating to retirement income,

IRAs, Roth IRAs, educational IRAs, medical

savings accounts and section 125 cafeteria

plans:

Please call (800) 829-1040

For further Employee Plans Information: Go to

www.irs.gov/ep.

Timing and More Timing

Speaking of “Timing” (see the story

over there to your right), this edition

of our “Timing is Everything” flyer is on

page 9 and features info on starting or

increasing retirement plan contributions.

Maybe the employee has just finished

car payments or their kid is out of

college or who knows what. There’s

no time like the present to give yourself

a present for retirement.

Feel free to go ahead and print and/or

share the flyer with your employees.

5
Spring 2006 Retirement News for Employers

6

This Way to the Forums

The 2006 IRS Nationwide Tax Forums will be held in

six locations across the country starting next month.

The EP seminars are “Accessing Money from a

Retirement Plan” and “Roth 401(k) and Tips.”

“Accessing Money” presents highlights of minimum

required, early, and hardship distributions; loans and

prohibited transactions; and the distinction between

withdrawals from traditional accounts and Roth

accounts. “Roth 401(k)” features the latest

information on the new Roth 401(k) accounts as well

as tips on avoiding common pit-falls discovered in

examination projects conducted on SIMPLE IRA,

SEP, and traditional 401(k) plans. In addition, EP will

sponsor a booth in the exhibit hall where you can pick

up our products or speak with a retirement plan

specialist.

The locations and dates are:

Anaheim, CA June 27 – June 29

Chicago, IL July 11 – July 13

Atlanta, GA July 25 – July 27

Orlando, FL August 1 – August 3

Las Vegas, NV August 22 – August 24

New York, NY August 29 – August 31

To get additional information about the Tax Forums,

visit www.irs.gov and then go to “Tax

Professionals,” “Tax Pro Events” and “IRS

Nationwide Tax Forums.” You can register online at

www.taxforuminfo.com.

The Fix Is In: Common Plan Mistakes

In each issue of the Retirement News for Employers we present a common mistake that happens

in retirement plans. We describe the problem, how it happened, how to fix it and how to lessen the

probability of the problem happening again. This edition of the column focuses on “Simple”

Retirement Arrangements – SEPs, SARSEPs and SIMPLE IRA Plans.

The Issue

Many of you make use of one of the “Simple” plans that

are designed to be easy to establish and administer. A

SEP is a Simplified Employee Pension plan. Employer

contributions are made directly to an IRA set up for each

employee. A SARSEP is a SEP established before

1997 that includes a salary reduction arrangement. A

SIMPLE IRA plan may be adopted by small

employers. Employees may choose to make salary

reduction contributions and the employer makes

matching or nonelective contributions to an IRA set up

for each employee.

The Problems

Instead of covering just one failure, this issue will discuss

some of the most common failures found with “Simple”

IRA-based plans.

• Not updating the plans for new law, such as the

Economic Growth and Tax Relief Reconciliation

Act of 2001 (EGTRRA).

• For SARSEPs, failure to pass the deferral

percentage test.

• Under or over contribution of funds.

The Fix

The problems discussed will cause a plan to become

disqualified, resulting in adverse tax consequences to the

employer and employees under the plan; however,

employers may get relief from these adverse

consequences through the Employee Plans

Compliance Resolution System (EPCRS) by

correcting the failures. The Self-Correction Program

(SCP) or Voluntary Correction Program (VCP) can be

used to correct these mistakes. In order to fix the

mistake under SCP, generally the mistake must be fixed within two years after the end of the plan

year in which the failure occurred. Unless the failure can be classified as insignificant, VCP must be

used after this time.

Failure to amend timely for new law can be corrected by adopting the necessary documents

that bring the plan into compliance. Any participant benefit lost due to the failure must be

restored. For SIMPLE IRA plans, EP is offering employers an extended time (until

December 31, 2006) to update their plans for EGTRRA.
Spring 2006 Retirement News for Employers

7

Can We Talk Yet?

When it comes to the preparation of

the Form 5500 or Form 5500-EZ

and representation during an EP

examination, preparers should

complete Line 5, Preparer

Information. Completion of this line

will enable the preparer to act as the

taxpayer’s representative, but only in

matters concerning that particular plan

year.

Order Up

The IRS is now taking orders for

the 2006 Small Business

Resource Guide CD-ROM.

The CD has valuable forms,

instructions and publications. It

also provides valuable business

information from a variety of

government agencies, non-profit

organizations and educational

institutions. The CD contains

essential startup information

needed by new small businesses in

order to be successful. There’s

even material on choosing

retirement plans suited for small

businesses. So place your order

now for this essential product.

Failure to pass the deferral percentage test applicable to a SARSEP happens when the average percentage

of deferrals made by highly compensated employees (HCEs) exceeds the average percentage of deferrals

made by non-highly compensated (NHCEs) by more than 25%.

This failure may be corrected in one of the following ways:

1) Contributions that are 100% vested may be made to all eligible NHCEs (to the extent permitted by the

law) necessary to raise the percentage needed to pass the test.

2) Excess contributions, adjusted for earnings, may be distributed to HCEs. An amount equal to the total

amount distributed must be contributed by the plan sponsor and allocated to current or former

employees who were NHCEs in the year of the failure.

If the failure involves under contributions, make-up amounts that are fully vested and adjusted for earnings

would be made by the plan sponsor. Generally, the earnings rate is based on the investment results that

would have applied if the failure had not occurred. If the actual investment

results cannot be determined, a reasonable interest rate may be used.

Over contributions or excess amounts are treated differently based on how

they occurred:

1) If they are due to elective deferrals, the excess amounts, adjusted for

 earnings, may be distributed to the affected participant, reported on

 Form 1099-R and are includible in gross income in the year of

 distribution. The affected participants must be notified that the corrective

 distribution is not eligible for favorable tax treatment (i.e., tax-free

 rollover).

2) If they are due to employer contributions, the excess amount, adjusted

 for earnings, may be distributed to the plan sponsor. The amount

 distributed is not includible in the gross income of the affected participant

 and the plan sponsor is not entitled to a deduction for the excess

 amount. The distribution is reported on Form 1099-R issued to the

 participant indicating the taxable amount as zero.

If an excess amount is retained in the IRA-based plan:

1) A special fee, in addition to the VCP submission fee, will apply.

2) Generally, only excess amounts that did not result in a violation of a

 statutory limitation can be retained.

3) No deduction is allowed for an excess amount retained in the plan.

4) If the retained excess amount is due to contributions in excess of the legal

 maximum, the excess amount, adjusted for earnings, must reduce each

 affected participant’s limit for the year following the year of correction (or

 for the year of correction if the plan sponsor so chooses) and subsequent

 years, until the excess is eliminated.

5) If the total excess amount is $100 or less, it is not required to be

 distributed and the special fee will not apply.

Making Sure It Doesn’t Happen Again

Employers need to have a system in place to ensure that their IRA-based

plans are updated timely for new law. Employers should work with plan

administrators to ensure that the administrators have sufficient payroll information to verify that the proper

deferrals and contributions are made to each participant. However, keep in mind that, despite all of your

good efforts, mistakes can happen. In that case, the IRS can help you correct the problem and retain the

benefits of your qualified IRA-based plans.
Spring 2006 Retirement News for Employers

Department of the Treasury Publication 4278 (5-2006)

Internal Revenue Service Catalog Number 37968B

8

IRS employees contributing to

this edition of the Retirement

News for Employers are:

Evelyn DeWald,

Larry Isaacs,

Michael Julianelle,

Joyce Kahn,

Peter McConkey,

Todd Newman,

Mark O’Donnell,

Nancy Payne,

Keith Ruprecht,

John Schmidt,

Brenda Smith-Custer,

Susan Taylor, and

Mikio Thomas

Let’s Just Take It One Three-Month Period at a Time

Operating a retirement plan can be a time-consuming job. There are deadlines, not just for

reports and forms but also for making contributions. There are conferences and seminars. And

then there is information you need to give to participants.

So to help you navigate the retirement plan timeline, here is our month-by-month look at some of

the important moments in the months to come. Please note that all of the filing dates below are for

calendar-year plans - adjust the dates for non-calendar year plans:

June 1: EBSA Seminar: Voluntary Fiduciary Correction Program – Sturbridge, MA.

June 7: EBSA Seminar: Getting It Right – Know Your Fiduciary Responsibilities – San Antonio,

TX.

June 27-29: IRS Nationwide Tax Forum – Anaheim, CA.

July 11-13: IRS Nationwide Tax Forum – Chicago, IL.

July 15: Second quarterly installment due date for the 2006 plan year.

July 25-27: IRS Nationwide Tax Forum – Atlanta, GA.

July 31: “Form 5500 Day”– File 2005 Form 5500, Annual Return/Report of Employee Benefit Plan,

or Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan,

with DOL/EFAST,

or

File Form 5558, Application for Extension of Time to File Certain Employee Plan

Returns, with IRS to request a 2 1/2 -month extension (October 16, 2006) to file the Form

5500 or Form 5500-EZ.

August 1-3: IRS Nationwide Tax Forum – Orlando, FL.

For a comprehensive list of upcoming EP Educational Events, visit the

Retirement Plans Community web page, select “Plan Sponsor/Employer,”

then “Questions: Where to get Answers” and click on “Upcoming EP

Educational Events.”

= contribution

= conference

= file forms
Spring 2006 Retirement News for Employers

Timing is Everything

Some helpful retirement tips for employees from the IRS...

Phew! April 15th is over. Don’t wait until next

April to start planning for your retirement.

Have you received a raise? Did your child graduate from college? Did you

graduate? Congratulations! Consider increasing your retirement savings while

at the same time decreasing your taxable income......

* Many plans have quarterly or semi-annual entry dates.

 If you are not already participating in your plan,

 consider starting.

* If you are participating, consider increasing your

 deferrals.

Did you know.....?

If you turn 50 at any time during 2006, you may be eligible to make catch-up

contributions. For 2006, the maximum catch-up contribution is:

* IRA - $1,000

* SIMPLE plan - $2,500

* 401(k) or 403(b) plan - $5,000

For more retirement tips, talk to your employer or visit www.irs.gov/ep, select “Plan

Participant/Employee” and click on “Timing is Everything.”

Department of the Treasury Publication 4278-B (5-2006)

Internal Revenue Service Catalog Number 47879D