Enrolled Retirement Plan Agent
Rev. 10/13/05, E-mail Alert 2005-20

The IRS Advisory Committee on Tax Exempt and Government Entities (ACT) has proposed the creation of a new category of professionals that would be permitted to practice before the IRS. The “enrolled retirement plan agent” category would be in addition to the existing four categories of practitioners: attorneys, accountants, enrolled actuaries, and enrolled agents.

Proposal for the “Enrolled Retirement Plan Agent”

Background
Last year, Rich Hochman and other industry leaders brought attention to the fact that the IRS had changed Form 2848. The change meant that only four categories of professionals would be permitted to represent clients before the IRS on some retirement plan matters. These professionals include actuaries, attorneys, accountants, and enrolled agents designated by clients on Form 2848. Well, the story has developed a great deal since last year.

The IRS Restructuring and Reform Act of 1998 imposed substantial penalties on IRS employees that had unauthorized dealings with third parties. The purpose of the law was to prevent tax fraud. As a result, IRS Form 2848 (Power of Attorney and Declaration of Representative) was revised, and limits were placed on professionals that did not fall into one of the four categories. In particular, restrictions were put on “Unenrolled Return Preparers” (previously category H).

Fallout from the Change
It soon became apparent, however, that there was a need for relief because of the myriad retirement plans represented by third party administrators and benefit consultants who are not members of one of the four approved categories. This is primarily the result of the tremendous growth of defined contribution plans over the last 20 years. Because of the intensive recordkeeping involved, 401(k) plan sponsors in particular have come to rely on third party administrators and benefit consultants to prepare Form 5500 and represent the sponsors before the IRS.

A Solution Emerges
The IRS Advisory Committee on Tax Exempt and Government Entities (ACT) performed a comprehensive analysis of the situation and has proposed the creation of a new category of practitioner that will be permitted to represent qualified retirement plan sponsors before the IRS. Rich was one of the practitioners invited to meet with ACT members to discuss current practices in retirement plan administration, explain the key role that practitioners play in representing employers’ plans, and outline the problems caused by the change in Form 2848.

Testing, Continuing Education, and More
The proposed title for the new category of practitioner is Enrolled Retirement Plan Agent (or ERPA) under Circular 230. ACT has made a proposal to the IRS that would create a testing and approval process for individuals to pass in order to attain ERPA status. Status renewal procedures and continuing education requirements would parallel those required for enrolled agents.

IRS Examination
Generally, ERPA candidates would be tested on their knowledge of all types of retirement plans including defined contribution, defined benefit, and ESOP. Ethical, procedural, and practical testing elements could mirror the enrolled agent examination.

Scope
ERPAs would be able to:

• Prepare and file initial, amendment, and termination determination letters,
  
• Prepare and file Form 5500 and extensions,
  
• Prepare and file excise tax returns,
  
• Represent qualified retirement plans in audits by the IRS and other US agencies, and
  
• Prepare and file or assist in voluntary compliance programs.

Knowledge of Code Sections
ERPAs would be required to have knowledge of the Internal Revenue Code Sections applicable to qualified retirement plans, specifically Sections 72, 401, 402, 403(a), 404, 404(a)(2), 408, 410 through 417, 512, 513, 514, 4972, 4973, 4974, 4975, 4978, 4979, 4979A, 4980, 6057, 6058, 6652(e), 6652(f), 7805(b). Detailed knowledge of actuarial concepts would not be included.

Timing
Because of the number of potential tax filings and audits related to retirement plans, ACT has recommended a target date of October 2006 for the beginning of the ERPA enrollment process. (Whether a similar program for individuals working with 403(b) and 457(b) plans can be adopted remains to be determined. Such a program was not included in the original proposal.)

Back in the IRS’s Court
The creation of ERPA as a new professional designation represents a major breakthrough in the retirement industry. The addition of mandatory continuing education requirements may unsettle some, but will upgrade the status of the proposed designation. It will be interesting to see how the IRS responds to the ACT proposal. McKay Hochman intends to remain actively involved as this process continues to develop. We’ll keep you posted as things progress.