The Internal Revenue Service (IRS) began terminations of employees on February 20, 2025, with initial news reports of layoffs set to 6,000 terminations and a stated intent to downsize its workforce by upwards of 50 percent as the Trump Administration carries out its efforts in reducing the federal workforce. On May 2, 2025, the United States Treasury Inspector General for Tax Administration (TIGA) released a report detailing the impacts of the IRS workforce reductions through the end of March. The combination of significant staffing cuts and limited avenues for IRS review of retirement plans has increased the need for plan sponsors to ensure their own compliance.
IRS Staffing Reductions
The TIGA report shows that prior to the reduction efforts, the IRS had 103,000 employees. In March, 7,315 probationary employees received termination notices, with 4,128 having their deferred resignation approved, causing an 11 percent reduction in workforce. The IRS will further reduce its workforce through three voluntary separation programs, with over 23,000 additional employees applying for voluntary separation, and 13,124 being approved as of April 22, 2025. Separately, an estimated 63 percent of the current IRS workforce is eligible to retire by 2031.
According to TIGA, the Tax Exempt and Government Entities department lost 694 employees, representing 31 percent of the unit’s workforce. The TIGA report highlighted that within the reductions, certain job titles were disproportionately impacted, noting that revenue agents declined by approximately 31 percent across the IRS. Notably, in fiscal year 2023, revenue agents, who conduct audits of individual and entity tax returns, were responsible for realizing $32 billion in tax assessments to the IRS.
Limited IRS Review of Individually Designed Plans
The loss of 31 percent of the Tax Exempt and Governmental Entity Division, which assists pension plans, tax-exempt entities, and governmental bodies with their compliance efforts, could be problematic for the retirement plan community. Within the last decade, the IRS has already curtailed services available to qualified pension plans. Effective January 1, 2017, the IRS eliminated the staggered five-year remedial amendment cycle program for individually designed qualified retirement plans, meaning that the IRS will no longer accept applications for updated determination letters. Notably, the IRS expanded the determination letter program to individually designed 403(b) plans starting June 1, 2023. This allows sponsors of 403(b) plans, such as universities, schools, tax-exempt organizations, and churches, their first opportunity to secure assurance from the IRS on plan document compliance.
While helpful, the IRS review of individually designed qualified and 403(b) plans is limited to initial determinations and plan terminations. A plan sponsor that maintains a qualified plan or 403(b) plan and has been issued a favorable determination letter may continue to rely on the determination letter with respect to any plan provision, until such time that the plan provision is subsequently amended or affected by a change in law. Notably, there have been significant federal law changes for retirement plans since the last filing cycle, including the CARES Act, the SECURE Act and SECURE 2.0. Without the remedial cycle filings, a plan that has been amended cannot receive assurance from the IRS that the amendment is in compliance with the Code. In that absence, Ice Miller’s Comply Now Program is designed to address plan sponsor uncertainty and risk.
The Comply Now Program
Where does the elimination of the determination letter remedial cycle system, audits being limited, and the current IRS staffing crisis leave us, and why does it matter?
Comply Now helps plan sponsors maintain compliant plans through both a plan document component and a plan operation component.
Comply Now is available to plan sponsors of:
- 401(a) plans, including defined benefit, money purchase, cash balance, profit sharing, and 401(k) plans;
- 403(b) plans, including 403(b)(1) annuity contracts, 403(b)(7) custodial accounts and 403(b)(9) retirement income account plans; and
- 457(b) plans, including governmental and tax exempt ones.
Through a Comply Now review, Ice Miller can:
- Identify important plan document and operational issues and assist with corrective efforts to help maintain tax-qualified status: The IRS permits self-correction under expanded SECURE 2.0 rules or through the Voluntary Compliance Program (VCP);
- Assist with IRS filings for an initial determination letter for individually designed qualified plans and 403(b) plans: This can be particularly helpful to 403(b) plan sponsors that have never had the opportunity to receive a determination letter in the past; and
- Conduct focused audits of the plan’s operations to determine whether common compliance issues are occurring: These may include, for example, failing to follow a plan’s definition of compensation, depositing employee contributions in an untimely manner, failing to comply with contribution limits, or incorrectly reporting loan repayment failures.
