Archived Insight | July 29, 2021

IRS Revises Retirement Plan Corrections Program

The IRS recently updated its correction programs for employee retirement plans to make several significant changes. The changes continue to protect participants while providing plan sponsors with cost and administrative relief.

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The IRS Employee Plans Compliance Resolution System (EPCRS) allows sponsors of qualified retirement plans and 403(b) annuity plans to correct some mistakes under the Self Correction Program (SCP). To correct other types of mistakes, plan sponsors must submit an application to the Voluntary Compliance Program (VCP). When mistakes are identified in an audit, there is also an option to pay a penalty and make a corrective amendment under the Audit Cap Program.


The latest update to the EPCRS, which was issued on July 16, 2022 as Rev. Proc. 2021-30, makes these changes:

  • Expands guidance on recouping overpayments
  • Replaces the anonymous submission procedure under VCP with a no-cost anonymous pre-submission conference procedure
  • Extends the SCP correction period for significant failures from two years to three years
  • Eliminates the requirement that a corrective amendment of a plan operational failure has to apply to all participants
  • Extends until 2023 the temporary automatic enrollment 401(k) special correction
  • Increases the amount for which no correction is needed (from $100 to $250)

Expanded guidance recouping overpayments

It is not unusual for plans to overpay or underpay participant and beneficiary benefits. Under EPCRS, an overpayment of benefits is considered to be an operational failure that plans are supposed to correct by seeking repayment. EPCRS offers the plan sponsor an alternative of the employer making a payment to the plan in lieu of obtaining repayment from the participant.

The revised EPCRS allows plans to offer the participant or beneficiary the ability to repay an overpayment in a lump or installment payments. In addition, effective July 16, 2021, EPCRS creates two additional methods for DB plans:

  • Funding exception correction (FEC) method — For a single-employer plan, this method allows the plan not to seek repayment from the participant, beneficiary or sponsor if the plan is at least 100 percent funded (measured by the adjusted funding target attainment percentage). A multiemployer plan need not seek repayment if the plan’s most recent zone certification indicates that the plan is not in critical, critical and declining, or endangered status (i.e., is in green status). While the plan need not address the past overpayment, future payments to participants and beneficiaries must be reduced to the correct benefit payment amount. This will satisfy IRS requirements for correction.
  • Contribution credit correction (CCC) method — Under this method, the amount of overpayments required to be repaid is reduced (but not below zero) by the “contribution credit.” The contribution credit is the sum of (A) the cumulative increase in the plan’s minimum funding requirement attributable to the overpayments; and (B) certain additional contributions in excess of minimum funding requirements paid to the plan after the first of the overpayments was made. If the contribution credit is not enough to cover the full overpayment, the plan sponsor has to contribute the remaining amount.

New anonymous pre-submission conference procedure under VCP

For many years, a plan sponsor could pay the VCP fee and submit anonymously in order to see if the IRS would agree with the proposed correction. Effective January 1, 2022, the revised EPCRS eliminates the ability to submit anonymously. However, sponsors or their representative will be able to make an anonymous no-cost written request for a pre-submission conference to discuss a potential VCP submission. If the sponsor decides to submit a VCP after the conference, the submission cannot be anonymous.

Extension of the SCP correction period for significant failures

Self-correction avoids costs for plans sponsors and workload for the IRS. Practitioners have been pushing for expansion of the self-correction program, and the IRS has gradually been responding.

The latest change, which will take effect on July 16, 2022, would provide for self-correction of significant operational errors by the last day of the third year after the year the mistake was made. Previously, the relief was limited to two years.

Elimination of the requirement that a corrective amendment of a plan operational failure has to apply to all participants

The EPCRS allowed plan to correct plan operational failures by adopting an amendment to improve a benefit, right, or feature. However, the improvement had to apply to all participants eligible to participate under the plan. The rule didn’t limit the improvement to only those affected by the mistake, making it hard to satisfy.

Effective July 16, 2022, the correction need only apply to those affected by the mistake.

Extension of the temporary automatic enrollment 401(k) correction

The ECPRS contains a special correction method for correcting missed elective deferrals for eligible employees in a 401(k) or 403(b) plan with automatic enrollment. The special correction method was temporary, and had expired December 31, 2020.

The IRS has retroactively extended the temporary relief procedure to December 31, 2023.

Increases amount for which no correction is needed

The EPCRS provided that no correction was needed for de minimis amounts of $100 or less. The revised procedure increases the de minimis amount to $250 or less.

Implications for plan sponsors

The changes are welcome and demonstrate that the IRS is trying to work with plan sponsors and participant groups to make EPCRS cheaper and more useful. The changes made by the IRS in the revised EPCRS are ones that address problems that plan sponsors have identified.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.