At the Joint Meeting of the Pension Liaison Councils held earlier this year, the IRS in several presentations to practitioners discussed how, in an examination of a qualified plan, the examiner’s primary focus initially will be on the “internal controls” that a plan sponsor has in place to ensure that the plan is being run in accordance with its terms and the law. If the IRS finds that the “internal controls” are not in place, officials indicated that this will lead to further examination and inquiries into the plan’s practices and may lead to sanctions if issues are uncovered.
So, just what questions will the IRS be asking in order to found out what “internal controls” the plan sponsor has in place? You can now view the questionnaires online at this link here. (You can also find the links in this recent IRS newsletter here.)
The posting of these questionnaires is helpful to plan sponsors because they now have a “heads up” as to what to anticipate in an IRS examination and can use these questionnaires to be better prepared. Please note that, while the IRS has stated informally that it no longer asks for a copy of formal or informal self-audits conducted by the plan sponsor, some of the questions that the IRS asks in its questionnaires does appear to be aimed at extracting information that would normally be obtained from such audits, i.e. “Do you know of any operation or form failures with the plan” and “What are the failures and how many years did it occur?” In the past, practitioners were critical of any attempts by IRS to obtain copies of formal self-audits for several reasons, one of which was the attorney/client privilege, and another of which was the “chilling effect” this would have on self-audits, as plan sponsors would be hesitant to perform their own audits if they thought IRS was going to ask for the results in an examination. My guess is that practitioners will likely be critical of these particular questions in the Internal Controls Questionnaire for some of the same reasons.