Detailed Information on the
Internal Revenue Service Retirement Savings Regulatory Program Assessment

Program Code 10004106
Program Title Internal Revenue Service Retirement Savings Regulatory Program
Department Name Department of the Treasury
Agency/Bureau Name Department of the Treasury
Program Type(s) Direct Federal Program
Assessment Year 2006
Assessment Rating Adequate
Assessment Section Scores
Section Score
Program Purpose & Design 100%
Strategic Planning 88%
Program Management 84%
Program Results/Accountability 33%
Program Funding Level
(in millions)
FY2007 $35
FY2008 $35
FY2009 $34

Ongoing Program Improvement Plans

Year Began Improvement Plan Status Comments

Increase enforcement efforts by 2011 in order to improve retirement plan compliance to 80 percent. Spring 2008 Update: Since the implementation of focused examinations techniques in January 2006, return closures have increased, the change rate increased, and average time per case and cycle time decreased. The EP Compliance Unit (EPCU) is in its third full year of operation. The unit has made over 7,000 compliance contacts since its inception. Initially, the EPCU had three compliance projects. As it has matured, the unit is currently involved in nine (9) compliance projects and has completed six (6) additional compliance projects. Through a combination of compliance contacts and examinations, the EPCU has secured correction to plans totaling over $4.5 million, collected nearly $2.5 million in excise taxes, and secured correction of over 26,000 W-2s. The unit continues to address emerging issues and is investigating additional data sources to address future areas of non-compliance. Improvements will occur with the implementation of a second EP Compliance Unit, refinements to case selection, efficiencies from using focused examination techniques, case processing improvements, and use of the TE-GE Reporting and Electronic Examination System (TREES).

Action taken, but not completed

Implement electronic case file development system to improve timeliness and efficiency of the examination process. Spring 2008 Update: Deployment of TREES (an electronic Windows based software program used to create/assign cases, work the case, document activity, and ultimately close and review the case) including training on its use was completed and available to all Exam personnel in April 2008. TREES replaced the RGS Workcenter software used in the past for case management. As part of the evaluation period before full deployment is certified, IRS will be monitoring cycle time to identify and resolve performance issues.

Action taken, but not completed

Implement staggered amendment process and review initial experience to further enhance determination processing efficiency Spring 2008 Update: The IRS successfully completed the defined contribution (DC) pre-approved plan program with all 102 applications for lead plans reviewed and approval letters issued on schedule in March 2008. Training was completed for the defined benefit (DB) pre-approved plan program in April 2008 and technical guidance is available. IRS has assigned 35 lead plans; with 12 cases ready for second-level review. Following successful completion of the DC pre-approved plan program, recommendations from focus group interviews were implemented including providing applicants with a description of the process and developing a case assignment letter to keep applicants apprised of case status for defined benefit plans. For individually designed plans, the IRS commissioned a task force to review the staggered determination process. Results and recommendations will be presented to the program executives for consideration in 2009. In addition, with respect to the staggered determination letter review process IRS is half way through its initial 6-year cycle for pre-approved plans and 5-year cycle for individually designed plans. The process met initial goals, avoiding the use of examination resources to address major spikes in the inventory of determination letter cases. The IRS expects a large increase in applications in 2010 and is looking at alternatives to address the processing of these cases while continuing to refine the process to provide faster service. For example, IRS is providing the necessary guidance for each cycle prior to its start to promote early processing. Despite this improvement, IRS is still experiencing mini-spikes with a significant number of pension plans submitting their applications during the last month of each one-year cycle.

Action taken, but not completed

Streamline voluntary compliance program and expand access for small businesses Spring 2008 Update: An extreme breakthrough change team (XBT) was assembled to determine additional ways to reduce time on cases and case cycle time. As a result, additional merit closure procedures were developed and implemented. IRS expanded the scope of its Self-Correction Program (SCP) to those where substantial completion of corrections was made as of the date the plan or plan sponsor comes under audit. The number of plan mistakes have been expanded for which sample correction methods are provided. Compliance fees have been reduced for several types of plans (Simplified Employee Pension (SEP) plans and SIMPLE IRA Plans (i.e., plans maintained by small employers)) and sample applications have been developed. In a soon-to-be-released 2008 revenue procedure, the modeling application developed in 2006 will be expanded to apply to 22 additional common types of plan mistakes further reducing screening and processing times. In addition, the VCP case acknowledgement letter procedures have been streamlined; model compliance statements for use by agents have been developed; new merit closing procedures were developed to increase the number of VCP cases closed at the screening level; and sample application forms were created to assist plan sponsors in completing a VCP application and to also reduce case screening and processing times. Marketing and Outreach efforts continue with expansion of the "Correcting Plan Errors" web page (available on www.irs.gov/ep) to include a guide on completing Voluntary Correction Program (VCP) applications and a "Fix-It Guide" (to assist plan sponsors in finding, fixing, and avoiding plan errors). Additionally, a "Retirement Plan Pitfalls Workshop" has been developed and will be delivered at the 2008 IRS Nationwide Tax Forums. Expansion of marketing and outreach will begin in September and continue through 2009. Outreach efforts will include regular articles regarding common plan errors as well as correction and submission tips published in EP's electronic newsletters (Employee Plans News and Retirement News for Employers).

Action taken, but not completed

Completed Program Improvement Plans

Year Began Improvement Plan Status Comments

Improving efficiency, processing timeliness and case targeting through a new information management system and other inventory selection tools implemented in 2007.

Completed EP tested and implemented a comprehensive compliance risk modeling process to improve case selection. EP implemented automated determination and examination case management systems to improve administrative efficiency and reduce case processing times.

Program Performance Measures

Term Type  
Long-term/Annual Outcome

Measure: Employee Plans Compliance Rate

Explanation:The Employee Plans Compliance rate is the ratio of plans with no significant compliance issues to the total number of IRS approved private retirement plans. The rate is estimated through an ongoing research program which uses audits of a random sample of plans to assess risks by market segment. The data reported for FY 2005 is preliminary and based on analysis of 58 percent of the plan universe.

Year Target Actual
2006 N/A 76%
2008 75%
2009 77%
2010 79%
2011 80%
2012 80%
Long-term/Annual Output

Measure: Enforcement Presence

Explanation:The number of unique employee plans examined (audited) or subject to other IRS-initiated compliance action divided by the number of Employee Plans returns (Form 5500/EZ) filed.

Year Target Actual
2002 N/A 0.9%
2003 N/A 0.5%
2004 N/A 0.7%
2005 N/A 0.8%
2006 1.1% 0.9%
2007 1.0% 0.9%
2008 0.9%
2009 0.9%
2010 1.0%
2011 1.0%
2012 1.1%
Long-term/Annual Output

Measure: Percent of Customer Compliance Requests Processed within 120 Days

Explanation:The percentage of cases in the Determination and Voluntary Correction programs that are closed within 120 days.

Year Target Actual
2004 N/A 30%
2005 N/A 6%
2006 30% 33%
2007 40% 18%
2008 18%
2009 20%
2010 52%
2011 24%
2012 26%
Annual Efficiency

Measure: Examination hours per case

Explanation:The average number of direct hours used per Employee Plans return examined during the fiscal year.

Year Target Actual
2002 34.0 40.4
2003 37.0 38.3
2004 36.0 38.3
2005 38.5 43.8
2006 39.6 48
2007 45 45
2008 48
2009 48
2010 45
Annual Efficiency

Measure: Determination hours per case

Explanation:The average number of direct hours used per closed Employee Plans determination case during the fiscal year. Overall hours per case will rise in FY 2007 due to a shift in case mix and expected legislative changes.

Year Target Actual
2002 3.8 6.0
2003 3.6 4.1
2004 4.1 3.4
2005 3.0 3.1
2006 3.9 5.3
2007 5.0 7.8
2008 9.0
2009 6.8
2010 3.0

Questions/Answers (Detailed Assessment)

Section 1 - Program Purpose & Design
Number Question Answer Score

Is the program purpose clear?

Explanation: The Internal Revenue Service's (IRS) Employee Plans function ensures that retirement plan sponsors, plan participants, and practitioners working in the retirement benefits arena understand and comply with the laws governing retirement savings. Employee Plans promotes compliance by providing guidance on plan requirements, offering means for plans to become qualified or to correct deficiencies, and maintaining an enforcement program to identify and resolve compliance risks.

Evidence: The IRS' Employee Plans function was originally authorized in the Employee Retirement Income Security Act of 1974 (ERISA) (P.L. 93-406, Section 26 USC 401). See "Employee Plans - A Closer Look" for basic information on Employee Plan's purpose and functions (http://www.irs.gov/retirement/article/0,,id=103022,00.html).

YES 20%

Does the program address a specific and existing problem, interest, or need?

Explanation: Federal tax law provides large tax expenditures to encourage retirement savings. The Office of Management and Budget (OMB) estimates the net exclusion of pension contributions and earnings results in a tax expenditure of approximately $103 billion annually. In 1974 Congress found that retirement plans were important to the "well being and security of millions of employees" and that plans lacked "information and adequate safeguards". Through ERISA, Congress established minimum participation and vesting standards and some protection extending to the surviving spouse of the plan participants. In addition, the Act imposed upon all pension plans certain minimum funding requirements. Over 100 million Americans participate in private sector retirement plans. Employee Plans protects these investors and ensures that this tax expenditure is consistent with Congressional intent by ensuring that (1) contributions are within legislated limits and are reported accurately, (2) contributions are appropriately applied to provide retirement benefits for participants and (3) assets remain in retirement solutions.

Evidence: See Analytical Perspectives for the FY 2007 Budget, page 289, for estimates of tax expenditures (/omb/budget/fy2007/pdf/spec.pdf). Congressional findings leading to the original Employee Plans program can be found in section 2 of ERISA, P.L. 93-406. The Employee Benefit Research Institute estimated that 101.8 million individuals participated in private sector retirement plans in 1999 (www.ebri.org, see 4/2005 paper on "The U.S. Retirement Income System").

YES 20%

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: Although other agencies help to protect pensions, Employee Plans has exclusive jurisdiction to enforce the federal tax laws that apply to retirement plans. Employee Plans provides the sole means for retirement plans to obtain assurance that they satisfy relevant tax provisions and enforces tax-law requirements through its compliance programs. In contrast, the Department of Labor (DOL) enforces the fiduciary responsibility standards of Title I of ERISA, while the Pension Benefit Guaranty Corporation insures retirement benefits in defined-benefit pension plans. ERISA explicitly pre-empts any and all state laws insofar as they relate to any employee benefit plan.

Evidence: Employee Plans has sole responsibility for administering the provisions of the Internal Revenue Code (Section 26 USC 401) relating to defined-benefit and defined-contribution plans. Reorganization Plan #4 of 1978 clarified issues on jurisdiction among IRS, DOL and PBGC and has been supplemented by formal agreements between the three as necessary since that time. Section 514 of ERISA pre-empts state regulation of employee benefits, therefore no state, local or private effort duplicates Employee Plans' purpose.

YES 20%

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: There is no evidence that an alternative approach would improve performance.

Evidence: The 1997 Report of the National Commission on Restructuring the IRS concluded that "the Employee Plans/ Exempt Organizations operation is recognized as one of the most innovative and efficient functions within the IRS" (page 44, http://www.house.gov/natcommirs/report1.pdf). In addition, Treasury General for Tax Administration (TIGTA) and Government Accounting Office (GAO) have conducted a series of operational and policy reviews since the reorganization. While these reviews have identified improvement opportunities, none have identified alternative program designs that would improve performance. (See question 4.5 for information on these reviews.)

YES 20%

Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?

Explanation: Employee Plan's purpose is to protect retirement investors and revenue by ensuring compliance with laws and regulations relating to retirement plans. The program exclusively affects retirement plans that voluntarily seek tax-exempt status. By industry practice, virtually all plan sponsors seek rulings or determination letters to gain the tax benefits. Employee Plans further provides mechanisms for plans to voluntarily correct defects and takes enforcement actions against plans that neglect or abuse the rules.

Evidence: Per the Employee Retirement Income Security Act of 1974 (ERISA) (P.L. 93-406, Section 26 USC 401) only IRS approved plans receive tax exempt status.

YES 20%
Section 1 - Program Purpose & Design Score 100%
Section 2 - Strategic Planning
Number Question Answer Score

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: The ultimate goal of IRS's Employee Plans program is to protect retirement investors and revenue by promoting compliance with the regulations governing retirement savings. Employee Plans measures compliance in this sector using the employee plans compliance rate. It also sets goals for enforcement presence (audit rate). While this does not directly measure compliance, IRS officials believe that an adequate enforcement presence promotes compliance. Finally, it measures the timely processing of voluntary compliance actions including determination letters (a formal finding that a plan meets the requirements and qualifies for employee plan's tax advantages) and voluntary correction requests.

Evidence: Employee Plans has a research program underway to provide a baseline compliance rate based on audits of a random sample of approved retirement plans. The initial study is not yet complete, but based on completed audits of 37 of 79 risk assessment studies of segments of the plan population covering 66 percent of the employee plan universe the compliance rate for 2006 is estimated to be 76 percent. The full study is expected to be completed in 2007 and report updates annually after that. These updates will each be based on random audits completed in the prior three years. The compliance rate for individual segments has ranged from 55 to 89 percent. In addition, Employee Plans uses the percent of customer compliance requests processed within 120 days to capture the timeliness of customer-initiated compliance programs, and enforcement presence to measure the breadth of reach of its enforcement activities. These long-term measures can be found in IRS's FY 2008 Congressional Submission/performance budget (http://www.treasury.gov/topics/accounting-and-budget/).

YES 12%

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: Based on the preliminary baseline Employee Plans compliance rate of 76 percent, Employee Plans has established a target to improve its compliance rate to 80 percent by FY 2011 (this target may be updated based on refinement of the baseline). Furthermore, to ensure that voluntary compliance interactions are handled timely, Employee Plans has set a target to process 70 percent of determination and self-correction requests within 120 days by FY 2011. On the enforcement side, Employee Plans will emphasize the need to maintain a visible presence within its community by nearly doubling its enforcement presence to 1.5 percent by FY 2011.

Evidence: See the measures section for baselines and targets for these long-term measures. In general, compliance rates are very stable and difficult to move dramatically??the individual voluntary compliance rate for all taxpayers, for instance, ranged narrowly between 81.2 to 83.5 percent from Tax Year (TY) 1985 to TY 2001. Therefore, achieving a four-point gain in the Employee Plans compliance rate is an ambitious goal. To support this compliance goal, Employee Plans has targeted ambitious improvements in its proxy measures. Employee Plans intends to dramatically improve the timeliness of its voluntary compliance interactions: in FY 2004, just 30 percent of voluntary requests were processed within 120 days; by FY 2011, 70 percent will be. Employee Plans will also dramatically expand its enforcement presence. In FY 2003, Employee Plans' audit coverage rate dipped to 0.5 percent. With growth in its examination program and the addition of new compliance contacts through the Employee Plans Compliance Unit, enforcement presence rose to 0.9 percent in FY 2006 and has been targeted to nearly double to 1.5 percent by FY 2011.

YES 12%

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: Employee Plans will annually report overall compliance and has an array of other annual performance measures that relate to the long-term goal of improving compliance. These include its other long term goals of enforcement presence and percent of customer compliance requests processed within 120 days. Enforcement presence measures the breadth of reach of Employee Plans' enforcement activities, while the percent of customer compliance requests processed within 120 days captures the timeliness of customer-initiated compliance programs. Employee Plans also monitors the efficiency of its program delivery using hours per case for its two largest programs??Determinations and Examinations.

Evidence: See the measures section for detailed performance data. Employee Plans uses hours per case to measure productivity in its Determination and Examination programs. Along with the rest of IRS, Employee Plans is planning to move to cost-based efficiency measures in FY 2008.

YES 12%

Does the program have baselines and ambitious targets for its annual measures?

Explanation: Baselines for Employee Plans' annual measures, other than its new compliance rate, are well-established. The programs set targets annually within the context of available resources and anticipated demand. These targets reflect ongoing efforts to improve the quality, quantity and efficiency of Employee Plans' programs. For programs that are customer-driven (determinations and voluntary correction), however, it should be noted that measures are subject to significant and sometimes unpredictable swings due to underlying changes in demand and case mix.

Evidence: See the measures section for detailed baselines and targets for performance measures. Employee Plans intends to dramatically improve the timeliness of its voluntary compliance interactions; rising steadily from 33 percent of requests processed within 120 days in FY 2006 towards its long term goal of 70 percent by FY 2011. It is targeted to reach 50 percent in FY 2008. Employee Plans will also dramatically expand its enforcement presence. In FY 2003, Employee Plans' audit coverage rate dipped to 0.5 percent. With growth in its examination program and the addition of new compliance contacts through the Employee Plans Compliance Unit, enforcement presence rose to 0.9 percent in FY 2006 and is targeted to reach 1.1 percent in FY 2008. Improvements in hours per case are constrained by the need to ensure that the critical compliance function of these cases is not diluted. Nevertheless, examination hours per case is projected to improve by 17 percent, primarily due to the greater efficiency anticipated due to a new focused examination technique implemented this year. Although determination hours per case is projected to increase over FY 2005 levels, this is indicative of a change in the mix of cases to be processed under Employee Plans' new staggered filing program.

YES 12%

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: Employee Plans partners with the Department of Labor (DOL) and the Pension Benefit Guaranty Corporation (PBGC) to improve exchange of information to support the achievement of our interrelated goals. This includes reporting performance information where one agency's activities support other agencies. Employee Plans actively collaborates with other enforcement programs in the IRS and the federal government to identify and pursue abusive transactions involving members of our regulated communities. In addition, Employee Plans cultivates a complementary relationship with benefits practitioners and employers that sponsor retirement plans through an outreach program that encourages voluntary compliance with the federal tax law.

Evidence: Employee Plans maintains memoranda of understanding with DOL and PBGC that provide for sharing performance information and coordinating among our programs on issues such as pension funding. DOL, which processes the primary pension plan form (Form 5500), regularly reports performance information such as timeliness of posting returns to IRS, and compliance issues uncovered by one agency are referred to the appropriate agency. Similarly, IRS and PBGC share performance goals for their evaluation of waiver of minimum pension plan funding requirements requests. Employee Plans also participates in the IRS-wide Global Settlement Initiative to address certain abusive non-compliance issues. Finally, Employee Plans collaborates with the private sector to deliver outreach programs to help this sector understand its compliance responsibilities.

YES 12%

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: The Inspector General for Tax Administration (TIGTA) and the General Accountability Office (GAO) regularly audit different aspects of Employee Plans. In addition, the IRS sponsors an active public advisory committee for tax exempt issues which annually issues a report with recommended improvements from the perspective of the affected community. Finally, IRS' Employee Plans compliance study provides important information about the program's effectiveness.

Evidence: TIGTA and GAO audits are conducted in accordance with government accounting standards and are sufficient in scope to validate the programs' performance. Since 2001, TIGTA has completed 11 audits of Employee Plans' operations (see http://www.treas.gov/tigta/auditreports/), and GAO has completed three audits (see http://www.gao.gov). They are expected to continue frequent audits in the future. The public advisory committee establishes its own agenda and annually reviews at least one Employee Plans issue (see http://www.irs.gov/taxexemptbond/article/0,,id=134438,00.html for advisory committee reports). The IRS Employee Plans compliance study is based on audits of a random sample of plans and provides the best overall look at the program's success in ensuring compliance.

YES 12%

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: The IRS has presented an integrated performance plan and budget for a number of years that ties resource changes to expected performance changes. Budget initiatives describe performance impacts related to resource requests, linking resource changes to expected performance changes. However, in the case of Employee Plans, the performance measures in the budget are not consistent with those used in this evaluation. Furthermore, the IRS' budget structure does not provide information on the full cost of programs. Instead, one third of IRS' budget is in a separate Business Operations Support appropriation.

Evidence: See IRS's FY 2008 Congressional Justification for its integrated performance plan and budget (http://www.treasury.gov/offices/management/budget/budget-documents/cj/). Because of the relatively small size of the Employee Plans program and the structure of the IRS budget, Employee Plan's measures and goals are not typically covered in IRS's corporate planning and budget documents. Instead, Employee Plans is covered as part of the larger exempt organizations metric "Determination Cases Closed." This output measure provides little information on performance and is not used as a performance measure in this evaluation. However, the Employee Plans measures in this evaluation are used in internal documents and resource requests during budget development are linked with impacts on performance goals to demonstrate the effect of the requested resources on program performance.

NO 0%

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: Employee Plans has developed a key outcome measure (compliance) and useful output and efficiency measures. The IRS conducts a continuous process of planning and review for all of its programs. Employee Plans annually identifies significant Trends, Issues and Problems for the tax exempt division's Strategic Assessment. Building on the results of that Assessment, the tax exempt division develops a Strategy and Program Plan which outlines its operating priorities and major budget initiatives. In 2006, Employee Plans developed its own ten-year vision that will be incorporated into a new long-term Strategic Plan for the tax exempt division. In the future, Employee Plans is also planning to make use of unit cost rates (starting in 2008) to identify opportunities for further improving the efficiency of its programs. Finally, the new compliance study is providing a great deal of information to allow Employee Plans to more effectively target its programs to maximize effectiveness and efficiency. While Employee Plans still faces challenges in presenting full cost and performance information in the IRS performance budget, on the balance it has made progress in addressing its strategic planning issues.

Evidence: See the measures section for information on Employee Plans performance measures. The tax exempt division's comprehensive planning and review process ranges from the development of a division-wide annual plan and functional Work Plans to quarterly Business Performance Reviews (BPR) with the IRS Deputy Commissioners and regular internal operating reviews with each of its subordinate organizations.

YES 12%
Section 2 - Strategic Planning Score 88%
Section 3 - Program Management
Number Question Answer Score

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: Employee Plans regularly collects performance data and uses it to manage the program and improve performance. This includes data on performance measures and a variety of diagnostic metrics to help managers understand performance trends. Employee Plans participates in quarterly detailed program reviews with the IRS's two Deputy Commissioners to report progress in meeting annual performance goals. The use of data is constrained by the IRS Reform and Restructuring Act of 1998 (Section 1204) which prohibits the use of "measures of enforcement results" to evaluate employees.

Evidence: Employee Plans collects performance information in a variety of ways including: -Semi-annual Customer Satisfaction reports -Quarterly BPR reports; -Quarterly Tax Exempt Quality Measurement System (TEQMS) reports; -Monthly management information reports; and -The annual Employee Plans Workplan. Examples of management changes made based on performance information include: Employee Plans Determinations implemented a staggered determination letter process to avoid large workload spikes; Employee Plans Voluntary Compliance changed its program to streamline the processing of cases; and Employee Plans Examinations improved efficiency through the use of focused examinations.

YES 16%

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: Managers are evaluated based on achieving "commitments" outlined in their performance plans. These commitments are actions designed to move the regulatory compliance program toward its performance goals as set out in the tax exempt Strategic Plan and annual performance plans. Furthermore, Employee Plans coordinates with partners (the Department of Labor and the Pension Benefit Guarantee Corporation) on performance metrics for shared responsibilities through formal memorandums of understanding.

Evidence: Performance measures are written into the performance standards for executive positions. Progress toward business goals is monitored throughout the performance cycle and is assessed through regular performance and operational reviews at every level. Managers are evaluated annually and recognized accordingly.

YES 16%

Are funds (Federal and partners') obligated in a timely manner, spent for the intended purpose and accurately reported?

Explanation: As part of IRS' tax exempt division, Employee Plans fully obligates its resources and follows its annual financial plans. This question has been given a lower weight than other questions in this section because Employee Plans is funded as part of an annual largely salaries and expenses account. This type of account does not typically have problems with obligating resources according to plans.

Evidence: The IRS' tax exempt division, which includes employee plans, obligates over 99 percent of its resources each year. In FY 2005, it obligated 99.8 percent, and achieved an aggressive hiring goal, hiring all 69 planned hires for the fiscal year in Employee Plans. Monthly financial reviews are conducted, including continuous monitoring of attrition and labor projections through year-end, and adjustments are proposed to the hiring plan when attrition deviates from planned levels, thus allowing precise use of financial resources.

YES 4%

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: Employee Plans' management sets goals for efficiency (hours per case) and timeliness measures that are updated on an annual basis and tracked year to year for trends. These indicators enable assessments to be made as to the efficiency of the program as well as for the effective allocating of resources during the work planning process. Managers are held accountable in their performance reviews for meeting these goals. Employee Plans has developed business cases for major technology investments that identify the anticipated impact of these improvements on operational efficiency and cost.

Evidence: Employee Plans measures the staff hours that it takes to complete a determination letter application (a finding that a retirement plan meets regulatory requirements) and examination (compliance audits) staff hours per case. IRS is working to move from staff time based efficiency measures to cost based measures and expects to make this change in 2008. Employee Plans also measures timeliness of processing applications. (See measures section for details.)

YES 16%

Does the program collaborate and coordinate effectively with related programs?

Explanation: Employee Plans provides retirement plans a comprehensive compliance program for tax qualification issues. Employee Plans partners with the Department of Labor (DOL) and the Pension Guaranty Corporation (PBGC) to improve exchange of data and filing requirements for retirement plans. The separation of duties and relationship among IRS, PBGC and DOL is clearly defined in the Presidential Reorganization Plan #4 of 1978. Employee Plans cultivates complementary relationships with benefits practitioners and employers that sponsor retirement plans through an outreach program that encourages voluntary compliance with the federal tax law.

Evidence: Examples of Employee Plans' effective collaboration and coordination with related programs is included in the following documents ; IRS/DOL Coordinated Compliance Agreement, Memoranda of Understanding with PBGC and DOL, and Global Settlement Initiative (www.irs.gov Announcement 2005-80, October 27, 2005).

YES 16%

Does the program use strong financial management practices?

Explanation: The Employee Plans program follows sound financial management practices and none of IRS' material weaknesses relate directly to Employee Plans. IRS' auditor, the General Accountability Office (GAO), has given IRS a clean audit opinion and credit for improvements in its financial management. However, GAO still reports that; "The lack of a sound financial management system that can produce timely, accurate, and useful information needed for day-to-day decisions continues to present a serious challenge to IRS management."

Evidence: See Highlights of GAO-06-137 "IRS's Fiscal Years 2005 and 2004 Financial Statements" (www.gao.gov). GAO also reports, "IRS has continued to make great strides in addressing its financial management challenges and has substantially mitigated several material weaknesses in its internal controls. In FY 2005, IRS successfully implemented the first phase, or release, of its new Integrated Financial System (IFS), which is intended to replace the outdated financial management systems IRS used in recent years to process and report administrative (nontax) transactions. This first phase of IFS provides for improved audit trails and more timely information for such activities and transactions as travel, purchases of goods and services, and budgetary activities."

NO 0%

Has the program taken meaningful steps to address its management deficiencies?

Explanation: The Employee Plans program works to continually identify and correct management flaws. Employee Plans uses long-term planning, annual budget and performance planning and regular performance reviews throughout the year. In particular, it has developed outcome and efficiency metrics to help evaluate and manage its success. Reviews take place at all levels of the organization and take into account feedback from external parties such as the Tax IG (TIGTA) and the General Accountability Office (GAO). The main management weakness identified is an ongoing problem with IRS' financial management, particularly the lack of "reliable and timely cost information." As GAO confirms (Highlights of GAO-05-393), IRS is working to address these problems by upgrading its financial systems. IRS' new Integrated Financial System (IFS) may provide the sort of day-to-day cost data that GAO reports the IRS currently lacks.

Evidence: JAMES (Treasury's audit management system) indicates that IRS' tax exempt division implemented 131 of 167 corrective actions recommended by TIGTA or GAO between FY 2002 and FY 2005. Of the remaining actions, 30 were less than a year old. Other sources for identifying and addressing deficiencies include the tax exempt advisory committee, customer satisfaction and employee engagement surveys. Employee Plans has modified business process to improve performance and efficiency, in the following ways: (1) it revised the determination letter process to level out what had previously been extremely volatile workload levels; (2) it began monthly reports to monitor determination letter quality; and (3) it developed and instituted fraud procedures in response to two separate TIGTA audits.

YES 16%
Section 3 - Program Management Score 84%
Section 4 - Program Results/Accountability
Number Question Answer Score

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: Employee Plans is currently baselining its compliance rate, which should be completed by the end of FY 2007. Employee Plans has set a preliminary long-term goal of 80 percent which may be refined based on additional research findings. In the meantime, Employee Plans' proxy indicators have demonstrated some progress. Enforcement presence has improved significantly with the implementation of new correspondence contacts and will improve further with the adoption of a more efficient, focused audit approach this year. Timeliness of processing compliance requests fell during recent years, as Employee Plans experienced a periodic surge in receipts during which plans were updated to accommodate legislative changes. However, Employee Plans implemented steps this year to level these spikes by staggering future amendment filings, which led to improved performance in FY 2006 and should help drive continued improvements over the next few years.

Evidence: So far, Employee Plans has completed 47 percent of the segments in its research plan, representing 66 percent of the employee plan universe, and anticipates completing all 79 market segment studies by the end of FY 2007. Enforcement presence (audit rate) increased from 0.5 percent in FY 2003 to 0.9 percent in FY 2006. Although the percent of customer compliance requests processed within 120 days fell to just six percent in FY 2005, rebounded to 33 percent in FY 2006. The major factor driving the FY 2005 decrease??a cyclical review process under which all plans had to request a renewal of their qualification to become current with legislative changes??was eliminated with the implementation this January of a new staggered determination filing process.


Does the program (including program partners) achieve its annual performance goals?

Explanation: Although Employee Plans has missed some targets in recent years, it has nonetheless achieved gains in several areas. Enforcement presence has improved steadily since FY 2003. Employee Plans nearly doubled this measure even though it missed its aggressive annual targets. The backlog of determination cases that hindered the timeliness of processing voluntary compliance requests has now been eliminated, and examination hours per case will improve beginning in FY 2007 due to the implementation of the focused approach this year.

Evidence: Results over the last few years have been mixed, as shown in the measures section. For example, enforcement presence rose from 0.5 percent in FY 2003 to 0.9 percent in FY 2006. Determination letter timeliness rose to 33 percent in FY 2006 after dipping to just 6 percent in FY 2005.


Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: Employee Plans improved the efficiency of its determination letter program by nearly 50 percent (measured in staff hours) from FY 2002 to FY 2005. However, it dipped in FY 2006 due to a shift in the mix of cases. Productivity of its examination program (measured in hours per case) has declined by 8 percent, but its cases are more productive. Employee Plans continually undertakes steps to improve efficiency, including the roll-out of the focused examination program and the implementation of staggered requests for updated determinations this year.

Evidence: Over the last several years, Employee Plans has steadily reduced the hours per case in its determination program until a jump in FY 2006. In FY 2002, determination cases took 6.0 hours to process; by FY 2005, that rate had been reduced to 3.1 hours, largely through the implementation of an accelerated process for handling certain determination requests. Although examination hours per case increased over the same timeframe from 40.4 hours to 43.8 hours, Employee Plans has become more effective at targeting the highest-impact cases. This has resulted in a higher percentage of cases which detect noncompliance (up from 30 percent in FY 2002 to 52 percent in FY 2005). Because these cases have a more direct impact on deterring non-compliance, they are the most effective way to promote Employee Plan's overarching compliance goal. Finally, Employee Plans is making use of new, cost-effective correspondence techniques to resolve certain compliance issues (these are not reflected in examination hours per case).


Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: While there are other tax enforcement and regulatory organizations, they are substantially different from Employee Plans so that direct comparisons are either impossible or would not provide useful information.

Evidence: Other enforcement programs also measure cases closed, timeliness and quality. However, Employee Plans provides oversight and enforcement to a unique set of customers (employee pension plans and other retirement savings vehicles) that is governed by its own complex set of rules and regulations. Furthermore, Employee Plans is uniquely entrusted with the authority to offer plan sponsors reliance that their plan is qualified under the applicable federal tax statutes. Similarly, IRS ensures Internal Revenue Code compliance of other tax advantaged entities (e.g., charities, governments). But, their customer bases and issues are very different from those faced by Employee Plans.

NA 0%

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: Evaluations provide a mixed picture of Employee Plan's effectiveness. In 1997, the National Commission for Restructuring the IRS gave IRS' tax exempt division credit for developing "a variety of programs to encourage voluntary compliance" (page 44). The tax exempt division's advisory committee concluded in a May 2003 report that the tax exempt division was "doing a good job in combating abusive tax shelters and other abusive tax schemes." On the other hand, tax IG reports have found problems with Employee Plans following procedures consistently, resolving plan funding deficiencies, and determination letter accuracy. The General Accountability Office has suggested improvements are needed in the timeliness and content of form 5500 (the basic pension plan reporting form). Finally, Employee Plans' compliance study shows a preliminary result of 80 percent compliance. Since no prior studies are available, it is difficult to evaluate this rate.

Evidence: See the National Commission on Restructuring the Internal Revenue Service A Vision for a New IRS, at http://www.house.gov/natcommirs/report1.pdf. See http://www.irs.gov/taxexemptbond/article/0,,id=134438,00.html for advisory committee reports. The Tax IG (TIGTA) has completed a number of studies identifying weaknesses in Employee Plans' programs. For example it found in "Opportunities Exist for the Employee Plans Function to Improve the Timeliness and Accuracy of Merit Closure Determination Letters (Audit # 200410013) (http://www.treas.gov/tigta/auditreports/2005reports/200510127fr.pdf) that "quality assurance reviews have surfaced ongoing problems with the accuracy of determination letters. For the past 3 fiscal years (Fiscal Years (FY) 2002 through 2004), the EP Quality Assurance function has reported error rates of 17 percent, 22 percent, and 15 percent, respectively, for determination letters issued by technical screening centers." See also GAO's "Government Actions Could Improve the Timeliness and Content of Form 5500 Pension Information" (http://www.gao.gov/new.items/d05491.pdf) GAO-05-491.

Section 4 - Program Results/Accountability Score 33%

Last updated: 09062008.2006SPR