New IRS Rules Allow Retirement Plan Sponsors to Self-Correct Broader Range of Plan Failures
The IRS recently issued a new version of its Employee Plans Compliance Resolution System ("EPCRS") that gives sponsors of tax-qualified retirement plans additional options for self-correcting plan failures. The new EPCRS allows plan sponsors to use the Self-Correction Program ("SCP") in several circumstances, rather than requiring a Voluntary Compliance Program (VCP) filing with the IRS and payment of the applicable user fee.
Beginning April 19, 2019, plan sponsors that meet the conditions for using SCP can self-correct the following types of failures:
In addition, if a plan has received a favorable determination letter from the IRS, certain plan document failures can be corrected by plan amendment through SCP.
Background on EPCRS
Under the EPCRS, many failures by tax-qualified retirement plans to comply with Internal Revenue Code ("Code") section 401(a) and 403(b) may be corrected through the SCP, VCP, or Audit CAP, depending on the type of failure and other factors.
For failures that are eligible for SCP, a plan sponsor that has obtained a favorable determination letter and established compliance practices and procedures can self-correct without submitting the correction to IRS for approval and without paying a user fee. In contrast, failures that must be corrected through VCP require approval by the IRS, meaning the plan sponsor must submit an explanation of the failure, describe the proposed correction, and pay a user fee. The Audit Cap component of EPCRS applies when an uncorrected failure that cannot be corrected through SCP is discovered during an IRS audit.
New SCP Rules Issued to Ease Correction Burdens for Plan Sponsors
The IRS explained that expansion of the SCP will facilitate compliance for plans while reducing costs and burdens of compliance by allowing plan sponsors to self-correct under certain circumstances where SCP was not previously available.
Participant Loan Failures: The following changes apply to correction of failures involving participant loans:
Plan Document and Operational Failures: The IRS also expanded the ability for plan sponsors to self-correct under SCP for plan document and operational failures in the following circumstances:
The new EPCRS does not change the current rules that:
If you have questions or concerns about the new version of EPCRS, please contact the Hanson Bridgett Employee Benefits Group.
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