The threat of an IRS audit can often send a Plan Sponsor into panic mode. This is especially the case for plans in the tax-exempt and government markets. For years these types of retirement plans went without many guidelines and were able to stay ‘under the radar.’ However, in the past 10 years a lot has changed for these retirement plans. New regulations from the IRS (including the upcoming 2020 deadline for the pre-approved prototype document) have Plan Sponsors wondering if they can pass an audit from the IRS if presented with one.

Here at ADMIN, we specialize in plans with a complex level of design, as well as plans who struggle with maintaining compliance. Through our years of experience, we have narrowed down the ‘hot buttons’ that a plan can face during an IRS audit. In this two-part series we will share our insights on what the IRS is looking for when auditing your plan and how you can ensure you past their test!


What it is: A salary reduction agreement (SRA) is a formal written agreement between an employer and an employee that defines the employee’s election for a specified amount of taxable income to be voluntarily withheld from their paycheck (to be invested into a retirement account.)

Why it’s important: During an IRS audit, the auditor will often randomly select one or more SRA forms for the employers to produce. The purpose is to ensure that the employer has record of the employee elections and that the information provided on the SRA matches that of the contributions being remitted into the participant’s retirement account. If the employer fails to provide the selected SRA forms during an audit, the IRS will immediately examine prior years and request additional SRA forms as an added measure. If an employer is unable to produce these documents to the IRS, it can lead to a possible Plan or Operational failure of the IRS audit.  

TPA Assistance: Your TPA provider should be obtaining these documents on behalf of the plan and managing them in the event the plan is subjected to an IRS audit. During an audit, the TPA should be able to provide these documents and assist in any questions the IRS may have pertaining to the SRA paperwork.

What it is: An information sharing agreement (ISA) is a formal written agreement between two or more parties that provides an outline of the obtaining, holding, recording, and sharing of information between various organizations/vendors. The agreement also secures the confidentiality of information maintained by all signees.

Why it’s important: The ISA is essential when it comes to maintaining plan information and keeping a plan in compliance. While the agreement is especially essential for those retirement plans who have multiple vendors, it is also necessary for small plans with only one investment provider. The agreement allows all parties to share meaningful information regarding the plan itself as well as participant-level activity. This distribution of data keeps everyone involved in the retirement plan up to date with the plan and aids the plan’s overall compliance. During an IRS audit, Plans will often be asked if there is an ISA on file to ensure there is accurate record of historical data for the Plan. If a Plan is unable to provide one, the IRS will do a thorough investigation as to how historical data for the Plan is being maintained.

TPA Assistance: TPA’s often establish ISA’s with both the Plan Sponsor and the investment provider(s) who manage the assets for the Plan. These ISA’s allow the TPA to provide accurate recordkeeping services and assist the TPA in helping the Plan Sponsor keep the plan in compliance. The TPA also uses ISA’s in order to provide administration on multi-vendor plans as well as plans with deselected providers who hold (legacy) participant accounts (these types of plans require data aggregation). The TPA will also keep the ISA documents on file should a plan ever face an IRS audit and need to produce them.