SAVING : INVESTING : PLANNING EXPERTISE How to Prepare For and Survive a 403(b) Plan Audit Joseph S. Kendy III Senior Counsel

403(b) IRS Examinations What are they? Review of organization’s, books and records in regard to maintenance of their 403(b) plan Initial focus – > Specific tax year > Potential for expansion Objective – look for non-compliance

What is the basis of the exam? It could be any Code Section 403(b) compliance matter: > Timely plan adoption > Form compliance > Operating in accordance with plan terms > Universal Availability > Plan terminations > Form 5500 and internal audit – not applicable to public schools

Who is examined? & How are they selected? Education > Public & Private > K-12 & Higher Education Healthcare > Public & Private −Tax-exempt only (501(c)(3)) Other 501(c)(3)s Selection process > National Plan > Local Selection

What is the process? Step 1: They’re coming! > Phone call or letter Step 2: They’re here! > The importance of the initial meeting −Assemble the right team −HR / Payroll / Counsel −Have them in the room Step 3: Information Document Requests (IDRs) > Identifies: −What documents −What timeline −Negotiating Scope & Requests > Count on additional IDRs

Gathering IDR Documents & Records Employer’s Records Investment Provider Records Other service providers records > Compliance service provider, > TPA, etc. Negotiate scope and delivery

How is the exam resolved? Examiner’s initial findings Plan sponsor team review of initial findings Discussion, modification, & negotiation Final findings Closing Agreement (Audit CAP) Generally involves correction & sanction

Reality Check What are the odds of an audit? > Can vary by location & over time Is playing “Audit lottery” a good strategy? > No! > Ignorance isn’t bliss A lot at stake: > Your institution > Your participants IRS compliance activity – doesn’t end here

Compliance through correspondence (The non-exam) Employee Plans Correspondence Unit (EPCU) > An Employee Plans activity > Not to be confused with Exempt Organizations Extends the reach of limited IRS Resources > Beware the innocent inquiry from the IRS The EPCU Process > Targeted initiatives > Initial questionnaire and follow-up

EPCU 403(b) Initiatives K-12 Universal Availability > Phase I - completed 2009 > Over 5,500 letters sent out: −11 exams −1,000 identified for potential issues. Other 403(b) initiatives possible

Main Issues for IRS Activity Universal Availability > Potentially significant tax consequences to plan & participants Contribution Dollar Limitations > Records are data driven

Universal Availability Review Who can be included? > All common law employees can be eligible Who can be excluded? > Employees who work <20 hours/week > Students may be excluded −avoid pitfalls of misclassification > Leased employees & independent contractors −are never eligible Effective communication and opportunity needed

Review of 403(b) 2013 and 2014 Contribution Dollar Limits Overall DC limit: $52,000 for 2014, $51,000 for 2013 Includes elective deferrals (unchanged for 2014) > Basic: $17,500 > Long term Employer Catch-up, up to: $3,000 > Age 50 catch-up: $5,500

2013 Updates 403(b) prototype program > Currently found in Revenue Procedure Update to Employee Plans Compliance Resolution System (EPCRS) > Currently found in Revenue Procedure > Voluntary Correction Program > Self Correction

Resources Published IRS guidance > Regulations > Notices > Revenue Procedures > Revenue Rulings Individual rulings and determinations > Relied on only by recipient IRS website ( DOL website (for ERISA plans) Legal Counsel, Investment Providers, Other Service Providers

QUESTIONS ?

SAVING : INVESTING : PLANNING THANK YOU

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