Public Schools' 403(b) Plans Targeted for IRS Audits

[Guest CVCalhoun]

For anyone who may have missed today's BNA Daily Tax Report, it reports that Employee Plans agents in each of the four regions will begin initiating "on their own" (i.e., not at the request of the Exempt Organizations Division) audits of section 403(B) plans. In particular, Assistant Commissioner for Employee Plans and Exempt Organizations Evelyn Petschek's fiscal 1999 EP/EO Program Letter directs each region to examine "at least five" public school 403(B) arrangements within their jurisdiction. This information came from IRS Employee Plans Senior Tax Law Special Robert Architect, and was announced at the American Society of Pension Actuaries' annual meeting in Washington, D.C.

Mr. Architect indicates that these audits have already begun. Has anyone on this board experienced one? What questions are being examined? How tough are the auditing agents being?

[Note: This message was edited by CVCalhoun]

[Guest Rod Crane]

The TSA program of Aurora Public Schools in Colorado is currently being audited by the IRS. They are auditing the 1997 return and are asking for substantiation for the top 100 TSA contributors that the MEA, 415 and 402(g) limits have been satisfied. A very difficult task. I am assisting them as a benefits consultant work with their TSA vendors to help respond. Indications are strong that the IRS will be expecting the school to either directly monitor these limits or to hire a third party to do it for them. The situation is complicated by the MEA calculation because the District is a non-Social Security employer participating in Colorado PERA, which has a large contribution rate and a higher benefit level. Let me know if you wish to discuss further. Perhaps this could be a topic for the summer NAPPA meeting. Regards. Rod

[Guest CVCalhoun]

Thanks for your input. Having worked with a number of employers on ensuring compliance with all the limits, I know how tough it is--few are able to do more than spot check figures provided by the employee or the insurance company. I'll see what I can do about having this discussed at the NAPPA meeting.

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Employee benefits legal resource site

[david rigby]

Rod,

That seems like an onerous request from the IRS. There may be room for negotiation. Ask; offer to do the top 5 and the bottom 5 (of the top 100). Explain the time and expense involved. See what the response is.

With respect to the MEA calc, you should probably be prepared to calculate the DB portion (at least) two ways; the first is the method in the regs, and the second is (probably) based on actuarial principles. If the EE contributes (after-tax), don't forget to net this out.

Good luck. Let us know how it continues.