IRS revises qualified retirement plan correction procedure

by | Jul 19, 2021 | Articles, Employee Benefits and Executive Compensation, Insights, Media

On July 16, the Internal Revenue Service (IRS) released Revenue Procedure 2021-30 which restates and revises the existing Employee Plans Compliance Resolution System (EPCRS). EPCRS is an IRS program which permits sponsors of qualified plans (such as 401(k) plans) to correct existing defects in their plan’s documentation, operation, or administration without excessive penalties. EPCRS contains several programs, including the self-correction program (SCP), which allows certain corrections to be made without a formal IRS filing, and the voluntary correction program (VCP), which allows for correction through making a submission to the IRS. Although the new procedure is described as a “limited update,” it makes significant and, in some cases, welcome changes to some of the most useful features of EPCRS.

Expanded guidance on a plan’s obligation to recoup overpayments

The previous iteration of EPCRS indicated that the IRS was seeking comments on methods for plans to recoup excess payments from benefit plans (i.e., situations where administrative or calculation errors resulted in a distribution to a participant being too large). Revenue Procedure 2021-30 implements several changes to this process, including an explicit ability to accept a “payment plan” from a recipient of an overpayment and relief from the obligation to correct an overpayment for defined benefit plans with sufficient funding.

Replacement of the anonymous submission procedure with an anonymous “pre-submission” conference

One of the most useful features of prior versions of EPCRS was the ability of a plan to submit a VCP correction application anonymously. This allowed plan sponsors to withdraw the application if the proposed correction methodology was impracticable or inadvisable. However, the anonymous submission procedure was administratively burdensome for plan sponsors.

Revenue Procedure 2021-30 eliminates this program effective January 1, 2022, replacing it with an anonymous “pre-submission conference.” The pre-submission conference allows a plan sponsor to obtain oral (and non-binding) feedback on a proposed correction from IRS representatives prior to submitting a voluntary correction application. The only written guidance the IRS will provide in this case is confirmation that the conference took place, meaning the plan sponsor will still have to determine whether the VCP application should be filed with the IRS.

Extension of the two-year self-correction of significant failures

EPCRS has long permitted self-correction of certain failures through the SCP. However, the time period during which SCP is available depends upon the “significance” of the failure, which is determined based on several relevant factors. Significant failures were only eligible for correction through SCP if the correction was completed by the end of the second year after the year in which the failure occurred. The new procedure extends this limitation by a year. Plan sponsors will appreciate the additional year, particularly in one of the most common situations: the failure to timely make 401(k) contributions.

Welcome modification to rules applicable to retroactive plan amendment corrections

EPCRS permits certain operational failures to be corrected by retroactively amending the plan to conform with the actual administration (with several caveats). Previous versions of EPCRS required that any retroactive amendment that increased a benefit, right, or feature under a plan apply to all eligible participants. This restricted the usefulness of the correction method. The new procedure eliminates this blanket requirement, although it does retain other restrictions on corrections by retroactive amendment.

Extension of the ability to use existing procedure for correcting certain elective deferral features until the end of 2023

Prior iterations of EPCRS contained a safe harbor correction methodology for correcting missed elective deferrals to participant accounts in 401(k) or 403(b) plans, allowing the plan sponsor to correct the failure without making additional contributions if certain notice and timing requirements were met. The ability to use this safe harbor correction expired on December 31, 2020. The new procedure revives the method and indicates that it will be available until the end of 2023.

Seek legal advice on EPCRS or retirement plan matters

Revenue Procedure 2021-30 makes a number of other minor changes, including increasing certain de minimis amounts which do not require correction, and revising the method by which certain filings are made. EPCRS remains a very useful and relatively inexpensive program for plan sponsors when correcting retirement plan administration and operational defects.

Saxton & Stump attorneys Steve Bowers, Sarah K. Ivy, and Rick Calabrese regularly assist plan sponsors, fiduciaries, record-keepers, trustees and participants in maintaining compliance with IRS and DOL rules and regulations. Contact us to discuss whether EPCRS would be helpful for your business or organization and how our Employee Benefits and Executive Compensation team can assist.

 

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