Retirement News

for Employers

Helping Business Owners with Retirement Plans

Internal Revenue Service Tax Exempt and Government Entities

Another Way to Spell “Relief”: E-P-C-R-S

Perhaps in some future world, an employer will purchase a pension plan, plug it in, stand

back and casually watch its smooth, flawless operation. But today, any employer with a

plan knows this is not the case: a pension plan is complex and you as plan sponsor need

to be ever-vigilant - both to its form and to its operation. First, your plan is subject to

occasional renovation as pension laws and rules get changed. And, second, you cannot

simply let down your guard because your plan is state-of-the-art: once launched, your

plan must also be operated correctly and in accordance with its written terms.

The IRS recognizes the challenge. Even those employers who sponsor large plans and

have hired crews of experts – administrators, attorneys, actuaries – occasionally have

their plans drift off course: new law provisions might not be adopted timely; eligible

employees might not participate just when they should; distributions might be made when

they shouldn’t be made – such are just a few of the common failures that may occur.

The IRS is well aware that mistakes can and do happen. That’s why the IRS has in

place a system that lets you bring your plan back into compliance without losing its tax

benefits: the Employee Plans Compliance Resolution System, or “EPCRS”. EPCRS

encompasses three distinct correction programs: 1) the Self-Correction Program; 2) the

Voluntary Correction Program; and 3) the Audit Closing Agreement Program.

This article gives you a general sense of which

direction you need to go and what you’ll need to do

in order to get your plan back into the fold of

compliance. An expanded version of this article is

posted under the “How Do I Fix a Plan Mistake?”

section of the “Retirement Source for Plan

Sponsors” portion of the Retirement Plans web

page at www.irs.gov/ep.

Ideally, the failure will be resolvable under the SelfCorrection Program, or “SCP”, because you: 1) do

not contact the IRS and 2) do not pay any fee to the

IRS as a penalty for the failure.

Volume 1, Summer 2004

Inside This Issue

How to Subscribe to

Retirement News for Employers

page 3

Can’t Find a Beneficiary?

page 3

All You Ever Needed to Know...

page 4

Product Profile: 401(k) Plans for

Small Businesses Publication

page 4

Net Gains

page 5

New Program to Assist Small

Employers...

page 5

The Filing Cabinet

page 6

Short Stories

page 7

Calendar of Events

and Deadlines

page 8

Payroll Deduction IRA SEP SIMPLE IRA 401(k) Pension
Sound good? Well, yes, but not all plan failures are equal, or equally eligible for SCP. The

EPCRS Revenue Procedure provides the eligibility requirements for using SCP but,

generally, self-correction is limited to operational failures – i.e., the failure to follow the terms of

the plan – and the failure may be “significant” but must not be “egregious”. (The procedure

gives helpful hints regarding the difference between “significant” and “egregious.”) Also, selfcorrection is available, generally, only for plans not currently under examination by the IRS.

If you are eligible to correct under the SCP, then you must correct – or at least substantially

correct – the failure within two years of the end of the plan year in which the failure occurred.

Your correction must be in accordance with the “General Correction Principles” listed in the

procedure. (Appendix A of the procedure describes the most common operational failures

and the acceptable correction methods.) Insignificant operational failures are, of course, also

eligible for self-correction.

But what if the plan failure is not eligible for relief under the SCP? Say, if the failure is

operational but egregious, or isn’t operational at all but, rather, a plan document failure (late- or

non-amendment, for example)? There’s still room for you under the EPCRS umbrella: the

Voluntary Compliance Program, or “VCP”, may allow you to bring your plan in to the IRS for

correction.

In short, when

it comes to

plan mistakes,

mid-audit is

not the time

to start

thinking

seriously

about selfcorrection.

Unless you’ve already been notified that your plan is under examination, you should still be able

to correct but you will need to contact the IRS. The procedure will give you precise instructions

regarding what you’ll need to provide, and where to mail the submission. You will have to

identify each failure and its duration, indicate what correction you have made or propose to

make and indicate what specific measures you have taken to ensure that the failure will not

happen again. And where the correction involves making changes to your plan document, you

will also most likely need to submit simultaneously a determination letter application with its

applicable fee. Finally, you will also have to include payment of a pre-established fee based on

the number of participants in your plan, as specified in the procedure.

The IRS will review your application and will provide a compliance statement setting forth the

agreed terms of correction. Among other things, this document will state that any proposed

correction must be made within 150 days from the date the Statement is issued.

There remains one, less attractive, way for you to correct failures in your plan: entering into a

“Closing Agreement” under the Audit Closing Agreement Program, or “Audit CAP”. Audit

CAP is for a failure discovered by the IRS, typically during an examination of a plan. After the

IRS uncovers a failure and the plan faces potential disqualification, you may be given the

opportunity to make full correction and to pay a sanction amount negotiated with the IRS,

basically a percentage of the tax that would be due if the plan were disqualified.

In summary: Plan mistakes happen. EPCRS is both the IRS’s acknowledgement of this reality

and a structured approach to dealing with it. Hopefully, you won’t have a need to turn to

EPCRS, but should that need arise, by all means do so.

Is your plan ailing? If so, give it a shot of vitamin EPCRS.

To see the

“director’s cut”

- an expanded

version - of this

EPCRS article,

go to the

“Retirement

Source for Plan

Sponsors/

Employers” at

the Retirement

Plans web page

and then click

on “How Do I

Fix a Plan

Mistake?”.

2

Summer 2004 Retirement News for Employers
Can’t Find A Beneficiary?

Many employers discover that finding missing participants can be next to impossible. However,

plan sponsors are required to use all reasonable means to locate a participant. One option

available to a sponsor is the IRS Letter Forwarding Program.

This program is available to individuals, companies, Federal agencies and is especially useful to

plan sponsors and administrators, who are attempting to locate missing plan participants. For

requests involving 49 or fewer recipients there is no charge.

So far, in 2004, the IRS has forwarded more than132,000 letters to missing participants.

According to Sharlonda Smith, Letter Forwarding Program administrator, these requests involve

more than $11 million in distributions to those missing participants.

The IRS Disclosure Office can forward letters from plan administrators to missing individuals if

the administrator provides the following information:

1. A brief explanation why they want to use the program (for example, to locate a missing

plan participant is sufficient);

2. The names of the missing individuals;

3. The social security numbers (SSN) of the missing individuals; and

4. The letters being forwarded. A separate letter should be addressed to each participant

involved and it should include a statement asking the participant to contact the plan

administrator directly.

5. Agreeing to pay the fees involved with use of the program.

IMPORTANT: The SSN is the key element used to access the right tax account and get a

mailing address. The letter cannot be forwarded if a SSN is not furnished.

If an address is located, the letter will be forwarded in an IRS envelope. The recipient (missing

participant) will be advised that:

1. The IRS is forwarding the letter in accordance with current policy;

2. It has not divulged the recipient’s address nor any other tax information, or the fact

that the letter has even been forwarded;

3. The IRS has no involvement in the matter aside from forwarding the letter; and

4. The decision of whether to respond is entirely up to the recipient.

Due to disclosure laws, the IRS cannot provide the requester with

the results of the mailing. The IRS can only state that it will forward

the letter if an address for the missing individual was located. All

letters returned undeliverable will be destroyed. Note that the Letter

Forwarding Program cannot be used to collect outstanding plan

payments from missing participants under the Employee Plans

Compliance Resolution System (EPCRS).

The Retirement Plans web page has more information about

the Letter Forwarding Program. Just click on “Retirement Source

for Plan Sponsors/Employers” and then go to “Find a Lost

Participant”.

Because of the high volume of requests, response time is based on

the overall workload of the Disclosure Office.

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 web page and

subscribe on-line by

selecting

“Retirement Source

for Plans Sponsors/

Employers” and then

“Retirement News

for Employers”. All

editions of the

Retirement News for

Employers will be

archived at the

Retirement Plans

web page.

For your

convenience, we

have included

Internet links to

referenced materials

throughout the

electronic version of

Retirement News for

Employers. These

links are identified

on the printed

version by the

underlined text. The

electronic version

may be found at the

Retirement Plans

web page.

3

Summer 2004 Retirement News for Employers
All You Ever Needed to Know About Dollar Limits

Employee Plans (EP) has gathered all the dollar limit numbers you need to know but didn’t

know where to find and put them on the Retirement Plans web page.

What do we mean by “dollar limits”? Well, for example, you’ll find the maximum you can

contribute to an IRA and deduct. Or, you can find the limit on compensation that can be taken

into account when figuring out retirement plan contributions (FYI: it’s $205,000 in 2004). We

have dollar limits starting in 1989 and continuing all the way through 2004.

Some of the most requested limits are the defined benefit and defined contribution dollar

limits ($165,000 and $41,000, respectively, for 2004) and the threshold for including

eligible employees under a SEP or SIMPLE plan ($450 in 2004). However, some

lesser known figures are given as well. For example, the chart has the deferral limit for

section 457 plans ($13,000 in 2004) and amounts for determining who is a “Control

Employee” – for purposes of valuing fringe benefits – as defined by section 1.61-

21(f)(5) of the regulations (for subsection –21(f)(5)(i), the 2004 amount ($80,000) is

unchanged from 2003 while for subsection –21(f)(5)(iii), the 2004 amount ($165,000)

is an increase from the 2003 amount ($160,000)).

So, if there are some dollar limitations that you have been searching for but didn’t know

where to look, just click on COLA Table or go to the Retirement Plans web

page, click on Published Guidance and go to “Cost-of-Living-Increases”.

P.S. Look for the 2005 figures to get posted in October or November.

IRS employees

contributing to this edition

of the Retirement News

for Employers are:

Bob Brambilla

John DeJong

Evelyn DeWald

Larry Isaacs

Joyce Kahn

Teresita Laureano

Peter McConkey

Todd Newman

Mark O’Donnell

Nancy Payne

Irving Porter

Donna Prestia

John Schmidt

Sharlonda Smith

Brenda Smith-Custer

Susan Taylor

Product Profile –

401(k) Plans for Small Businesses Publication

Are you considering establishing a 401(k) plan for your small business? Does your

small business sponsor a 401(k) plan? Do you have questions about some of the

rules and requirements of your 401(k) plan?

The IRS and the Department of Labor’s Employee Benefits Security

Administration (EBSA) have issued a joint publication to provide answers to your

questions. 401(k) Plans for Small Businesses is a plain-language publication that

provides basic information on establishing and operating 401(k) plans, such as

adopting a written plan, contribution limits and fiduciary responsibilities. It also

describes three available 401(k) plan designs – traditional, safe harbor and

SIMPLE 401(k) plans – and discusses the features and advantages of each. In

addition, it discusses the DOL and IRS correction programs that help 401(k) plan

sponsors fix plan errors, protect participants and keep the plan’s tax benefits.

Finally, the publication provides additional resources if you need more in-depth

information.

This publication, as well as additional information on 401(k) plans, can be found on the IRS and

EBSA websites, www.irs.gov/ep and www.dol.gov/ebsa. Copies of the publication

can be ordered by calling either (800) 829-3676 (IRS) or (866) 444-3272 (EBSA). Both

numbers are toll-free.

Interested in more plainlanguage retirement info?

Check out our ever-growing

stock of pubs, brochures and

other help-filled products.

Just go to “Forms and Pubs”

by clicking on “Retirement

Source for Plan Sponsors/

Employers” on the Retirement

Plans web page.

4

Summer 2004 Retirement News for Employers
Net Gains

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

Plans web page information.

For those of you new to the Retirement Plans web page, 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.

For example, a recent addition to the Retirement Plans web page is:

The “Retirement Source for Plan Sponsors/Employers”

At the Source, you’ll find info targeted just for you: the employer or business owner. Among the

information you’ll find at the Source are:

 FAQs (and answers) on retirement plans;

 Various “How Do I...” topics;

 Retirement seminars geared toward small businesses;

 Forms and Publications; and

 Much, much more

So, if it’s retirement information you need, go direct to the Source.

Event Index

Interested in attending an educational event where you can hear an IRS specialist speak about

Retirement Plans or where you can have a one-on-one discussion with an agent and pick up our

latest promotional products? Then visit the Source at the Retirement Plans web page and

select the new “Upcoming EP Educational Events” to see a list of speeches, panels, workshops

and exhibiting events where IRS Employee Plans will be present. The list provides the name,

date and location of the event. It also provides a contact person who can give you additional

information on the event.

5

New Program to Assist Small Employers with Their

Retirement Plans

The Department of Labor’s (DOL) newest compliance assistance program – Getting It Right

– Know Your Fiduciary Responsibilities – will increase awareness and understanding about

the basic fiduciary responsibilities when operating a retirement plan.

Getting it right, however, can be challenging. This is especially true for small and medium sized

employers who have limited time, resources, and access to professional help with benefit

programs.

Specifically, getting it right means:

• Understanding your plan and your responsibilities;

• Carefully selecting and monitoring service providers;

• Making contributions on time;

• Avoiding prohibited transactions; and

• Making appropriate disclosures to plan participants and filing annual reports to the

government on time.

The Department’s new program combines free seminars around the country, new educational

materials, and a dedicated webpage. With the valuable participation of DOL’s partners,

Getting It Right will offer a helping hand to those who want to do the right thing.

Summer 2004 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 some forms when operating a retirement plan. And just as

your business forms sometimes change, retirement forms also sometimes change.

So to help you keep current with retirement form developments, we’re introducing

The Filing Cabinet. Stories in The Filing Cabinet will keep you up to date on

the stuff you need to know when you’re filing retirement forms. And so, without

further ado, the first Filing Cabinet:

Form 5500

The Form 5500, Annual Return/Report of Employee Benefit Plan, along with

its related schedules and instructions has been revised for 2003. Although the

annual revisions were minor in scope, there was a significant development in the

way the material was delivered to its potential users.

In a departure from prior practice, the government – IRS, DOL/EBSA and PBGC

– did not mail the traditional forms packages this year. Instead, postcards

reminding filers of their reporting responsibilities were mailed to all filers of record in

early March 2004. These postcards included information on how filers can request

paper copies of the required forms, schedules and instructions.

This change was in response to feedback from EFAST and the filing community

that indicated an ever-increasing trend among filers to use EFAST-approved

software as opposed to the government-printed material.

6

The free, one-day seminars currently scheduled are Burlington, Massachusetts on

September 8; Phoenix, Arizona on September 23; and Kansas City, Missouri on October

5. The seminars are open to the first 200 registrants. The IRS will join DOL/EBSA at the

seminars to discuss the key tax qualification issues. There will also be a discussion of both

agencies’ voluntary correction programs. See the seminar agenda below for more

information or go to www.dol.gov/ebsa for the registration pamphlets. For questions

or to register for the seminars, contact Norma Mannix, Coordinator, Fiduciary Education

Campaign, Tel. (202) 693-8684, Fax: (202) 219-8141, or Email:

mannix.norma@dol.gov

All attendees will receive a kit of information that includes two new publications – “Meeting

Your Fiduciary Responsibilities”, and “Selecting an Auditor for Your Employee Benefit

Plan.” In addition, there is a significantly expanded publication, “Understanding Your

Retirement Plan Fees and Expenses.” The “Reporting and Disclosure Guide” and the

“Retirement Plans Correction Programs” publications are also included in the kit. The

publications are available electronically or by calling toll-free (866) 444-EBSA (3272).

The Department’s Employee Benefits Security Administration is sponsoring the Campaign in

partnership with the Society for Human Resource Management, the National Federation of

Independent Business, the U.S. Chamber of Commerce, the American Institute of Certified

Public Accountants, and the U.S. Small Business Administration.

Contacting

Employee Plans

The Retirement News for Employers

welcomes your comments about

this edition and/or your suggestions

for future articles.

Send comments/suggestions to:

EP Customer Education & Outreach

SE:T:EP:CEO Room 4C3

1111 Constitution Avenue, N.W.

Washington, DC 20224

Fax: (202) 283-9525

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 of the

Retirement Plans web page.

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 Retirement

Plan Information

Please go to the Retirement Plans

web page.

Summer 2004 Retirement News for Employers
Short Stories

Welcome back to Short Stories: the best in brief in the world of retirement. Our topics in this

edition include:

• SB/SE Tax Calendar: The IRS’s Small Business/Self-Employed Division has an

 information-filled web site, www.irs.gov/businesses/small, that has tons of material

designed just for small business owners. One of the many helpful sections on their site is the

Tax Calendar. The calendar includes important dates, filing tips and reminders for the small

business owner.

• The Tax Forums are Here: The IRS Nationwide Tax Forums are now being held.

As of press time, there are three remaining Forums scheduled for New Orleans, San

Antonio and Las Vegas. The Forums are designed for tax practitioners whose customers

are primarily in the small business community. Topics at this year’s events include filing,

preparing and appealing. The Employee Plans division of IRS will present seminars on “The

ABCs of 401(k)s” and “No Fuss Retirement Plans”.

• ACT III: The Advisory Committee on Taxation (ACT) is a council of private sector

professionals that provides EP and the Tax Exempt/Government Entities (TE/GE) operating

division of the IRS with recommendations and suggestions for improving customer service.

Recently, the newest incarnation of ACT – the third such one – posted its report on the

Retirement Plans web page. Included in the report are ACT’s ideas for plan

checklists; the Retirement Plans web page; and plain-language small business retirement plan

publications.

For more information on the ACT Report, go to the Retirement Plans web page, click on

“More Topics” and go to “Reports of the ACT”.

7

Are You Using the Correct

Address?

Speaking of Form 5330 - and, frankly,

who isn’t? - filers of this form are

reminded that the correct address to use

when actually filing the return is:

Internal Revenue Service Center

Ogden, Utah 84201

The Where To File instructions were

updated in March 2002 and can be found

on page 2 of the Instructions for

Form 5330.

Returns mailed to the former service

centers experience delays in

processing.

Additional information on the Form 5500 and Form 5500-EZ (including an updated list of

filing tips and the “Troubleshooter’s Guide to Filing the ERISA Annual Report”) can be found at

“Form 5500 Information” by clicking on “Retirement Source for Plan Sponsors/Employers” on

the Retirement Plans web page. The EBSA web page www.dol.gov/ebsa also has

Form 5500 information. Copies of the forms, schedules and instructions are also available from

the IRS by calling (800) TAX-FORM.

Common Mistakes in Preparing Form 5330

Filers of Form 5330 (Return of Excise Taxes Related to Employee

Benefit Plans) commonly make the following mistakes or errors in preparing

their returns:

• Failure to sign the Form 5330.

• Leaving plan number blank or using an invalid plan number.

• Using a single Form 5330 to report two or more excise taxes that do not

have the same filing due date and therefore may not be filed together.

• Failure to complete Lines 12a-12c in Part 1 when there is tax reflected on

Line(s) 1-11.

• If Part VII is applicable, failure to check appropriate box on Line 26a

(discrete or not discrete prohibited transaction) and Line 27 (corrected all

prohibited transactions).

• Confusion in the relationship between Parts VII and IX of the Form 5330.

For further information, see the Form 5330 Instructions by visiting the

Retirement Plans web page and clicking on the “Retirement Source for

Plan Sponsors/Employers”.

Summer 2004 Retirement News for Employers
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:

August 17-19: 2004 IRS Nationwide Tax Forum, New Orleans, LA

August 31-September 2: 2004 IRS Nationwide Tax Forum, San Antonio,

TX

September 8: DOL Seminar: Getting It Right – Know Your Fiduciary

Responsibilities - Burlington, MA

September 15: Deadline for making final required minimum contributions

for 2003 calendar-year money purchase and defined benefit plans.

September 14-16: 2004 IRS Nationwide Tax Forum, Las Vegas, NV

September 23: DOL Seminar: Getting It Right – Know Your Fiduciary

Responsibilities - Phoenix, AZ

October 5: DOL Seminar: Getting It Right – Know Your Fiduciary

Responsibilities - Kansas City, MO

October 15: File the 2003 Form 5500, Annual Return/Report of Employee

Benefit Plan or Form 5500-EZ, Annual Return of One-Participant Pension

Retirement Plan with DOL/EFAST for those who filed for a 2 1/2 month

extension prior to July 31.

October 15: Third quarterly contribution due date for 2004 calendar-year

defined benefit plans.

November 1: Last date for employers with SIMPLE IRA plans or SIMPLE

401(k) plans to notify eligible employees of salary reduction rights and of

the type of employer contribution to be made.

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

Retirement Plans web page, select “Retirement Source for Plan

Sponsors/Employers” and then “Upcoming EP Educational Events”.

= contribution

= conference

= file forms

Department of the Treasury Publication 4278 (8-2004)

Internal Revenue Service Catalog Number 37968B

www.irs.gov

Summer 2004 Retirement News for Employers