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IRS Updates Nonqualified Deferred Compensation Audit Technique Guide

The IRS recently updated its Nonqualified Deferred Compensation Audit Technique Guide (the “Updated Guide”), which replaces the previous version published in June 2015. The Updated Guide provides more detailed guidance on the legal standards applicable to deferred compensation arrangements, including the addition of specific citations to relevant regulations and revenue rulings. Notably, the Updated Guide also includes significantly expanded discussions about Code Section 409A and its application to deferred compensation arrangements. Code Section 409A, and other regulations impacting deferred compensation, are very complicated and can carry substantial penalties and taxes for noncompliance. As Congress and the Biden Administration look for additional sources of funding for their initiatives, heightened IRS audit activity may be on the horizon. The Updated Guide is a good reminder to employers that they should periodically review their nonqualified deferred compensation arrangements, not only for documentary compliance but operational compliance as well. The Updated Guide is available… Continue Reading

Updates to Employee Plans Compliance Resolution System

In Revenue Procedure 2021-30 (“Rev. Proc. 2021-30”), the IRS made certain updates to the Employee Plans Compliance Resolution System (“EPCRS”), including updates to the Self-Correction Program (“SCP”) and the Voluntary Correction Program under EPCRS. Among other updates, Rev. Proc. 2021-30 expands the correction methods for benefit overpayments by adding (i) the “funding exception correction method,” which provides an exception to corrective payments for plans that meet certain funding requirements, and (ii) the “contribution credit correction method,” which prescribes the amount of overpayments required to be repaid to the plan under certain circumstances. Further, Rev. Proc. 2021-30 (i) expands the circumstances under which plan sponsors may correct operational failures under the SCP by plan amendment, and (ii) extends, by one year, the end of the SCP correction period for significant failures. Rev. Proc. 2021-30 is available here. 

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