On June 3, 2022, the Internal Revenue Service (IRS) announced a new pre-audit compliance pilot program (Program) for retirement plans, including 401ks.1 This Program intends to reduce the IRS’s time on retirement plan examinations and audits while potentially reducing audit penalties for employers.

If the IRS chooses a 401k plan for audit, the IRS will first send the employer a letter stating:

  • The IRS has selected the employer’s 401k for audit.
  • The employer has a 90-day window to review their 401k plan’s documents and operations to determine if the 401k plan satisfies all tax or legal requirements.
  • The letter will identify certain tax issues that the IRS will focus on, such as plan contribution limits. However, these issues will not be the sole focus on the IRS audit. The IRS will look at these identified issues plus any other existing 401k plan issues.

Self-Correction Options for Employers

If the employer finds errors in their 401k plan’s documents or operations within the 90-day window, then the employer may be eligible to self-correct under the IRS’s Employee Plans Compliance Resolution System (EPCRS)2.

The employer must provide any self-correction documentation to the IRS within the 90-day period. The IRS will review the self-correction and determine whether it agrees with the employer’s conclusions. If it does, then the IRS will close the audit and issue a closing letter, allowing the 401k plan to keep its qualified plan status.

Non-Self-Correction Options for Employers

If any discovered 401k mistakes are not eligible for self-correction, then the employer must notify the IRS within 90 days to discuss next steps on how to correct these errors. Additionally, the IRS may assess penalties for these plan mistakes. However, these penalties will not exceed $3,500, as described in the IRS’s EPCRS3.

Note, these capped penalty fees are significantly lower than those issued through an IRS 401k plan audit outside of this Program.

If the employer does not contact the IRS within the 90-day period, the IRS will proceed with a limited or full audit of the 401k plan, at its discretion.

Additional Resources


  1. Internal Revenue Service. Employee Plans News. June 3, 2022. https://www.irs.gov/retirement-plans/employee-plans-news
  2. Internal Revenue Service. Revenue Procedure 2021-30, Employee Plans Compliance Resolution System. https://www.irs.gov/pub/irs-drop/rp-21-30.pdf
  3. Id.
  4. Internal Revenue Service. Employee Plans News. June 3, 2022. https://www.irs.gov/retirement-plans/employee-plans-news
  5. Internal Revenue Service. Revenue Procedure 2021-30, Employee Plans Compliance Resolution System. https://www.irs.gov/pub/irs-drop/rp-21-30.pdf

Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Financial Advisors at Pensionmark may also be registered representatives of Pensionmark Securities, LLC (member SIPC), which is affiliated with Pensionmark through common ownership.

Jenny Kiesewetter — Jenny is a Retirement Plan Compliance Consultant for Sequoia, where she works with our clients to optimize and streamline retirement plan compliance. In her free time, Jenny enjoys spending time with her friends and family, traveling, live music, and dining out.