Compliance News | June 1, 2023
The IRS has issued interim guidance on the expansion of the employee plan self-correction provisions of the SECURE 2.0 Act of 2022 (SECURE 2.0). The new guidance, which is in the form of questions and answers, covers:
Plan sponsors may rely on this guidance in determining whether self-correction is allowed until IRS updates the Revenue Procedure.
The IRS welcomes comments on this interim guidance by August 23, 2023.
The IRS’s Employee Plans Compliance Resolution System (EPCRS) provides plans with permissible methods for correcting plan mistakes to avoid disqualification of the plan. The rules of EPCRS, which are currently in Revenue Procedure 2021-30, limit self-correction to insignificant errors and some significant errors corrected within three years.
Section 305 of SECURE 2.0 expands a plan’s ability to self-correct “inadvertent” errors and instructs the IRS to revise the EPCRS by December 29, 2024 to reflect SECURE 2.0. Plans may apply SECURE 2.0’s self-correction provisions as of December 29, 2022. They do not need to wait under the IRS revises the EPCRS.
Under SECURE 2.0, a plan sponsor may correct an “eligible inadvertent failure,” which is a failure that occurs despite the plan maintaining required practices and procedures, specified in EPCRS, except to the extent the failure is identified by the IRS as ineligible for self-correction. (We summarized this and other SECURE 2.0 provisions in our January 4, 2023 insight, “SECURE 2.0 Retirement Reform Becomes Law.”)
Notice 2023-43 provides rules plan sponsors may follow in the interim period before the IRS revises the EPCRS Revenue Procedure. For actions completed after the enactment of SECURE 2.0 (December 29, 2022) and before the Notice was issued (May 25, 2023), the plan may rely on a good-faith, reasonable interpretation of SECURE 2.0’s self-correction provisions.
These interim correction rules apply to failures that occurred before the December 29, 2022 enactment date of SECURE 2.0, as well as those that occurred after that date (Q8).
The interim guidance sets forth these conditions for self-correction of “eligible inadvertent errors”:
The interim guidance clarifies that these eligible inadvertent failures may not be self-corrected unless EPCRS is revised to allow correction:
Under the interim guidance, these conditions for self-correction will not apply:
Self-correction does not apply, however, to waivers of excise or additional taxes, even if the failure is self-corrected. A voluntary corrections procedure (VCP) submission or voluntary closing agreement procedures is needed for those waivers (Q9). VCP submissions may still be submitted even if self-correction is permitted, including for a loan failure (Q10). The existing recordkeeping requirement (being able to provide documentation on request) applies (Q11).
The IRS requests comments on the interim guidance and any other aspects of SECURE 2.0 self-correction provisions. In particular, the IRS is interested in possible additional correction methods and principles of correction for methods not specified.
Comments are requested on or before August 23, 2023.
The changes made by SECURE 2.0 provide plan sponsors with increased opportunities to self-correct plan mistakes. Notice 2023-43 places some restrictions on self-correction but still leaves the self-correction rules much broader than under the current EPCRS Revenue Procedure. Plan sponsors now have a much less costly method for correction and may want to examine their plans for mistakes that should be corrected.
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.