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Guest Article

(From the June 18, 2012 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

IRS Identifies PPA Compliance Issues for Agents Conducting Audits

Seeking to provide training for agents who will be auditing plans for compliance with the Pension Protection Act of 2006 (PPA), the IRS initiated a project to identify potential areas of non-compliance.

Although the project remains ongoing, the IRS released a list of issues it has identified so far:

Annual funding notices—late or undated.
Elections to use or reduce prefunding and carryover balances—late or undated.
Elections to use prefunding and carryover balance to meet quarterly contributions—late or with unspecified dollar amount(s).
Adjusted funding target attainment percentage certification—late.
Actuarial increase for late retirement benefits—not made.
Asset valuation—done differently for minimum funding versus funding-based limits.
Relative value disclosure notices—not compliant with requirements to show relative value compared to the QJSA.
Contributions—late payment resulting in liquidity shortfalls.
Quarterly contributions—late.
Premiums for life insurance policies—inappropriate inclusion as plan expenses in target normal cost.
Funding—in excess of the deduction limit.
Determining accrued benefits in the valuation—use of a definition of compensation not consistent with plan terms.
Compensation for benefit purposes—not defined under the plan.
Service calculation for benefit purposes—incorrect calculation.
Distribution options subject to the Code section 417(e) cash-out restrictions—incorrect interest rates used for calculating.

Compliance with the Code section 436 funding-based limits is a qualification requirement, the release point outs. The PPA added new Code section 401(a)(29) to require single-employer defined benefit plans to comply with the new Code section 436 limits on benefits and benefit accruals if the plan is underfunded. Qualification concerns would also be raised where the plan is not operated in accordance with its terms (e.g., determining accrued benefits using a definition of compensation or measure of service that is inconsistent with the plan terms).

Nonetheless, the release notes that many of the identified PPA compliance issues are failures to comply with the funding rules and would, therefore, involve the potential assessment of excise taxes and penalties rather than raise qualification concerns.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations.

If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact:

Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.220.2692, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955.

BenefitsLink is an independent national employee benefits information provider, not formally affiliated with the firms and companies who kindly provide much of the content and advertisements published on this Web site, including the article shown above.