Rev. Proc. 2003-44 -- SIMPLE Plans covered

[Guest HRlawguy]

New Rev. Proc. 2003-44 (which was released June 23, 2003) supersedes Rev Proc. 2002-47 effective October 1, 2003, but allows plans to adopt Rev. Proc. 2003-44 after June 5, 2003. For the first time, SIMPLE Plans are specifically covered by the IRS Voluntary Compliance Program.

We have been working on a voluntary compliance arrangement for a SIMPLE plan (technically "outside of VCP") for almost a year (and it has trailed on mostly because of delays within the IRS). We have just received a letter asking whether we want to "convert" the closing agreement to a compliance statement under the new Rev. Proc., but without any indication as to how such a conversion might affect what has already been done--whether we would have to make additional submissions, whether the proposed sanctions would change, etc.

Would be interested in having some insight as to possible advantages or disadvantages of making the change.

[Theresa Lynn]

Because you were negotiating something outside EPCRS, it is hard to advise without knowing more about the terms that IRS was suggesting/considering under the non-EPCRS arrangement. I would look at the potential penalties under the new EPCRS rules and consider the risks of one being more onorous than the other. If you were an already eligible plan, the main consideration would be whether you thought that you might need to modify the compliance statement after it has been "agreed upon." That is one of the few areas where the new rules are worse than the old ones. The "costs" of a change in the compliance statement are much greater under 2003-44. Otherwise, the procedures are simpler and generally cheaper than under the (old) pre-June 5/October 1 system implemented in 2002.

You also might consider if it would be more efficient in time cost to switch to the streamlined, standardized manner or keeping with one that is tailored to your plan. This also might depend on what type of failure your plan had and the standarized or other methods of correction that would be used (and the related sanctions) under EPCRS.

I hope this helps.

[Guest HRlawguy]

Thank you for your response and I understand the difficulty of advising without more facts. In fact I understand it very well, because the negotiations so far have focused entirely on the correction mechanisms, rather than the sanction amounts, terms of the assurances from the IRS, etc. we had proposed. We thought that we were to the point that we would get a form of closing agreement any time sometime back in April because we had agreed on all points raised by the IRS. As such, we have had no indication (other than the IRS's silence) about whether our proposed sanctions were acceptable. It now seems clear the IRS, at least at the review level, was waiting to until the new Rev Proc was published. The only other outstanding issues seem to deal with the information to be supplied to participants and one point that a reviewer disagreed with the conclusion of the original staff member.

My gut reaction is to say we would prefer to just enter into a closing agreement under the prior informal procedures, unless we get assurances from the IRS that "conversion" will not require new submissions or an augmentation of the sanctions we proposed. Of course, since no closing agreement had been prepared, the IRS may simply apply the requirements of the Rev. Proc. anyway, given the fact that they were operating without specific guidelines for SIMPLE plans anyway.

[Gary Lesser]

Of course, since no closing agreement had been prepared, the IRS may simply apply the requirements of the Rev. Proc. anyway, given the fact that they were operating without specific guidelines for SIMPLE plans anyway.

Please keep us informed as to what actually does happen. I think they will, so be prepared.

What went wrong with the SIMPLE IRA? What type of failure?

For some falures the 2003-44 corrections methods are absurd and nearly impossible to effectuate without a DOL advisory opinion or exemption letter if the plan is covered by ERISA. The IRS appears to be under the impression that a trustee or custodian will make distributions upon the request of the employer. I do not believe that they will. Even if the IRS stated that they must, there is still DOL and state law issues to be considered.