The IRS recently announced a compliance check project for IRC 457(b) plans sponsored by non-governmental employers.  IRC 457(b) plans are non-qualified deferred compensation programs, often referred to as “Top Hat” plans. Only non-profit and governmental employers are permitted to sponsor 457(b) plans.  This compliance check is limited to non-profit sponsors.

The IRS Employee Plans Compliance Unit (EPCU) will be sending letters of inquiry to 400 non-profit entities, 200 before the end of September, and the balance before the end of the next Federal fiscal year, September 30, 2104.   

What are the IRS goals for this project? …

  • To learn more about the operation of non-governmental 457(b) plans,
  • To verify that the plans comply with the Internal Revenue Code requirements,
  • To identify issues of noncompliance, and
  • To recommend ways to remove any barriers to compliance.

“[The IRS] will, correspond with plan sponsors to solicit information about the characteristics and features of their plans, including contributions and employer and employee eligibility.”

This compliance check project appears similar to the 403(b) and 401(k) projects launched by the IRS within the last few years.  What we learned in those rounds is that clients are ultimately better served by engaging a competent benefits attorney knowledgeable about 457(b) plans to prepare or at a minimum oversee the response to the IRS, thereby limiting follow up issues and ameliorating the likelihood of a follow on full IRS audit.  Perhaps most importantly, a failure to respond to the inquiry will result in an IRS audit.

Provided below is a link to the IRS website – announcing the compliance check project and at the bottom of the IRS page are several other helpful links including the sample letter and questionnaire that will be issued to the selected  non-profits.

 http://www.irs.gov/Retirement-Plans/Employee-Plans-Compliance-Unit-(EPCU)--Non-Governmental-457(b)-Plans-Project