Businesses urged to plan for retirement

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Businesses urged to plan for retirement

By Joyce M. Rosenberg, Indianapolis star

June 16, 2003

Many small business owners will be getting letters from the Internal Revenue Service that won't be tax bills or audit announcements -- they'll be reminders about the benefits and requirements of retirement plans.

The agency says it's trying an approach it has never used -- an outreach to small businesses -- in hopes of persuading owners to start retirement plans such as IRAs, SEPs, SIMPLEs and 401(k)s or to be sure their existing plans comply with federal tax regulations.

"We thought we could get better compliance with 'soft contacts' . . . sending information to small businesses," said Mark O'Donnell, the IRS director of customer education and outreach for employee plans.

O'Donnell said companies fall out of compliance with tax regulations when they fail to satisfy requirements in retirement plan documents, or when they fail to operate plans according to the requirements.

"The complexity of these plans . . . creates a lot of noncompliance," he said.

Noncompliance can mean tax penalties for a company if it is audited by the IRS and, in some cases, a plan can lose its tax-saving status. But O'Donnell said there can be problems for employees as well. They could face tax penalties if their own contributions to a plan are found to be invalid.

In some cases, the noncompliance is a failure to include all eligible employees in the plan, and so these workers are missing out on an important benefit, O'Donnell said.

The IRS is tracking down business owners by going through its database of taxpayers and finding those who have set up retirement plans. The agency also is trying to reach companies through tax preparers, benefits counselors, chambers of commerce, the Small Business Administration and other avenues. It also is putting more information about retirement plans on its Web site: www.irs.gov

Many small businesses don't have retirement plans, and one aim of the IRS campaign is to nudge owners toward creating them by giving them more information about their options.

The IRS has several publications about small business retirement plans; they can be downloaded from the Web site or ordered by calling 1-800-TAXFORM. There is some overlap among the publications, but they nonetheless can be useful for business owners considering retirement plans for the first time.

Among the publications is 3998, "Choosing a Retirement Solution for Your Small Business," which includes a table spelling out the various plans. It also refers the reader to other IRS publications and other resources.

Publication 560, "Retirement Plans for Small Businesses," describes the plans and their requirements in more detail.

O'Donnell said one impetus for the IRS outreach campaign was a pattern of compliance problems found in audits of small businesses' plans. But he added, "we do not link this letter to any kind of audit program."

When audits reveal problems in retirement plans, companies are given a chance to correct them without losing their plans' tax advantages.

A word of advice: Don't try to handle this yourself. If your plan has compliance problems, get help from a tax professional as you work to resolve them.