This year marks the 30th anniversary of one of the greatest victories in ASPPA’s storied history. Here’s what happened.
It all started in 1989, when the IRS started to attack the actuarial assumptions the profession had been using since ERISA was enacted in 1974. At the time, it was permissible for partners in law firms, partners in medical practices, etc., to have their own individual DB plans. An IRS Assistant Commissioner and several others in the agency decided that these plans were inappropriately sheltering income and that they were taking deductions that were far too large. But instead of pursuing presumed abuses on a case-by-case basis, as would have been indicated under ERISA, the IRS issued a blanket mandate for the use of new IRS-specified assumptions.
To enforce its mandate, the IRS began a massive audit program across the country aimed at very large law firms that had multiple DB plans and small professional corporation plans. When the IRS auditors found irregularities in a plan, they imposed retroactive penalties, and ASPPA members would sometimes be sued by their clients.
Chet Salkind, ASPPA’s Executive Director, immediately perceived the audit not only as an attack upon the small business pension plan system, but also an assault on the membership of ASPPA, especially the pension actuaries for the plans that were being audited. Salkind, along with Government Affairs Committee chair Fred Reish and his law partner Bruce Ashton, determined to do something to prevent this overreaching abuse of authority by the IRS.
Reish and Ashton wrote a popular booklet that discussed what the IRS was doing, the legal issues involved, the practical issues involved, how to handle an audit, how to deal with the cases that members’ clients were involved in, and how to fight the audit program.
Meanwhile, Salkind filed FOIA requests to obtain audit-related documents from the IRS. Several of them told a damning story. “One indicated that they wanted to raise $666 million in revenues from the small plan audits, and when you worked out the numbers, that assumed they were going to reject the interest and retirement age assumptions in about 90% percent of the plans,” Salkind remembered in 2011. “The document indicated they weren’t dealing with the audits on an individual basis but were grossly imposing the new assumptions and doing it retroactively. It would have done serious harm to our members involved in small plans, and their clients.”
ASPPA also adopted the approach of meeting with IRS officials in person to find a solution to the crisis. In 1991, Reish and ASPPA President Pat Byrnes met with IRS Assistant Commissioner John Burke to discuss the poor relations between the agency and the private sector, especially in the small-plan DB pension plan market.
Later that year, those discussions led to a settlement program for the actuarial audits that many ASPPA members were able to take advantage of in order to close small cases inexpensively—and eventually to the creation of today’s IRS remedial correction program and the DOL’s voluntary fiduciary correction program. Perhaps more importantly, they marked the beginning of a long process in which ASPPA was able to form mutually beneficial good relations with the IRS and other federal agencies.
How did it all end? Ultimately, in 1995, the courts vindicated ASPPA’s members and the private sector by ruling that the IRS had been wrong in its approach. The IRS abandoned the small-plan audit program, and most plans had no penalties imposed upon them. As I said, one of ASPPA’s greatest victories.
John Ortman is the American Retirement Association’s Editorial Director. This post originally appeared in the Spring issue of ASPPA’s Plan Consultant magazine.
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