IRS Updates Employee Plans Compliance Resolution System
By: Stephen Bowers
Recently, the IRS updated the Employee Plans Compliance Resolution System (EPCRS), a voluntary compliance program that allows employer sponsors of qualified plans, such as 401(k) and 403(b) plans, to correct administrative or operational errors for a reduced user fee or, in some circumstances, without any fee or fine paid to the IRS. The updated program significantly expands the availability and utility of EPCRS. A few of the more notable improvements are described below.
EPCRS has historically consisted of three programs. The Self-Correction Program (SCP) permits plan sponsors to prepare a correction without the necessity of making a formal filing with the IRS. The Voluntary Compliance Program (VCP) and Audit CAP, on the other hand, require the plan sponsor to make a formal filing with the IRS, including the payment of a user fee.
The revised EPCRS expands the types of failures which are eligible for SCP, and provides specific, pre-approved correction methods for these new items. In particular, the new EPCRS expands SCP to specified failures involving participant loans taken from plans, including defaulted participant loans and failures to obtain required spousal consent. SCP is also now available for certain failures to timely adopt interim or “good-faith” amendments to account for changes in the law applicable to qualified plans.
Note that, as in previous versions of EPCRS, SCP’s availability is dependent on the “significance” of the failure. A plan sponsor may only use SCP to correct a significant failure before the end of the second year following the date of the failure. After this date, the failure must be corrected via VCP or Audit CAP. Whether a failure is considered significant is dependent upon a number of factors, which are described in detail in the revised EPCRS.
Expanded Correction by Amendment
In addition, the revised EPCRS greatly expands the types of failures which may be corrected by adopting a retroactive amendment to conform the plan document to the plan’s actual operations. Prior iterations of EPCRS allowed such a correction in only limited circumstances, which forced plan sponsors to attempt other forms of correction, often greatly increasing the expense of correction. Under the current EPCRS, a retroactive amendment may be used to correct most operational failures if:
- the amendment results in an increase of a participant’s benefit, right or feature;
- the increase in benefit, right or feature is provided to all employees eligible to participate in the plan; or
- the increase in benefit, right or feature:
- is permitted under the Code; and
- satisfies certain corrective principles established in EPCRS.
Although not all failures will be eligible for the improvements in EPCRS, this increased flexibility for certain common issues is intended to encourage plan sponsors to make greater use of the EPCRS program.
If you have questions or need more information, contact Stephen Bowers (email@example.com; 215.864.6247).