Background on the EPCRS program and prior guidance

The IRS has had an EPCRS program for almost 30 years. The EPCRS has increasingly relied on self-correction by plan sponsors with increasingly minimal involvement of IRS staff. Revenue Procedure 2021-30 was the last comprehensive EPCRS document.

SECURE 2.0 included specific changes in the rules for correcting plan errors as well as directives to IRS to make specific revisions to the EPCRS. Notices 2023-43, 2024-2 and 2024-77 implemented specific changes required by SECURE 2.0.

A related SECURE 2.0 provision that affects both correction of overpayments to participants and beneficiaries and fiduciary liability is within DOL’s jurisdiction. The DOL has not yet issued guidance on that ERISA provision.

The new EPCRS guidance

The new EPCRS Revenue Procedure, Revenue Procedure 2026-34, incorporates the three Notices mentioned above and makes other revisions to reflect SECURE 2.0 and IRS experience since Revenue Procedure 2021-30 was issued. Like Revenue Procedure 2021-30, Revenue Procedure 2026-34 provides for three correction programs:

• Self-correction program (SCP)
• Voluntary correction program (VCP)
• Audit closing agreement program (CAP)

Of most interest is the expansion of the SCP, which results in a decreased need to apply to IRS under the VCP.

Self-correction program

Plans may self-correct “Eligible Inadvertent Failures” under the SCP. To take advantage of the SCP, a plan must have policies and procedures to monitor and correct errors. Contrary to earlier versions of the SCP, no prior IRS determination letter is required.

The old distinction between the period to correct significant and nonsignificant errors has been eliminated. Correction must be made for all Eligible Inadvertent Failures within a reasonable period after identification of the failure. A reasonable period is based on all the facts and circumstances. A correction that is completed by the last day of the third plan year following the plan year in which the failure occurred or 18 months after identification of the failure by the plan sponsor, whichever is later, is deemed to have been completed within a reasonable period.

The EPCRS provides for an additional SCP period for failure to satisfy 401(k) plan excess and excess aggregate contributions. This additional period ends either on the last day of the third plan year following the plan year that includes the already existing correction period under the IRC or 18 months after identification of the failure.

The self-correction period ends when a plan comes under IRS examination; however, certain operational failures can still be self-corrected if they are deemed to be insignificant.

Eligible Inadvertent Failures are plan qualification failures and 403(b) plan failures that occur despite the existence of practices and procedures. It does not include any failure that is egregious, relates to a diversion or misuse of plan assets or is directly or indirectly related to an abusive tax avoidance transaction.

Eligible Inadvertent Failures include plan document failures, such as not including a required provision or including a provision that is not allowed under the law and failing to make a timely amendment. Eligible Inadvertent Failures also include operational failures, such as failing to follow plan terms, demographic failures, such as discriminatory coverage or benefits, and employer eligibility failures, such as an ineligible employer sponsoring a 403(b) annuity plan.

Another type of failure that may be self-corrected relates to contributions, benefits or allocations that are more than what is permitted under the plan or the IRC.

To self-correct an Eligible Inadvertent Failure, established practices and procedures reasonably designed to promote and facilitate overall compliance in form and operation must have been in place and routinely followed. In addition, the Eligible Inadvertent Failure must have occurred through an oversight or mistake in applying the practices and procedures or because the procedures that were in place, while reasonable, were not sufficient to prevent the failure.

Certain failures cannot be corrected under the SCP. These include the initial failure to adopt a plan document, failures in terminated and orphan plans and demographic failures corrected using a method other than the correction method specified in the nondiscrimination regulations. Also, a correction by amendment cannot result in a less favorable outcome for a participant or beneficiary than they had under the original terms of the plan.

Voluntary correction program

The expansion of the SCP results in a reduction in the necessity for and use of the VCP. The IRS recommends that prior to submitting a VCP, a representative of the plan sponsor requests a pre-submission conference with the IRS regarding corrective actions with respect to matters that are eligible to be submitted under the VCP.

The VCP is not based upon an examination of the plan by the IRS. Only the failures disclosed in the submission, added by the sponsor as permitted by the IRS, or failure identified by the IRS in processing the submission are addressed in the VCP. The IRS will not make any investigation or finding under the VCP concerning whether there are other failures. In most cases, there is no concurrent IRS examination if a VCP submission is pending. Further, if there is a subsequent examination, nothing said in the VCP process will be treated by the IRS as an admission.

The IRS does not allow for anonymous submissions. However, it will allow for group submissions by an eligible organization (e.g., a service provider) for plan document failures, operational failures and employer eligibility failures.

Correction must be made by specified time limits, in most cases 150 days, after the VCP compliance statement is issued by the IRS. There is a user fee for VCP submissions.

Audit closing agreement program

CAP provides a method of correction if the IRS finds a violation on examination. The examination is closed if the sponsor corrects and pays a sanction and signs a closing agreement. If there is no agreement as to sanction, the IRS will disqualify the plan or contract.

The sanction is a negotiated amount that is determined based on the facts and circumstances. Sanctions will bear a reasonable relationship to the nature, extent and severity of the failures. The sanctions will in most cases be greater than the VCP user fee. Among factors that go into determining the sanction are the steps taken by the sponsor to ensure no failures and to start correction, the number and type of employees affected by the failure and the type of, and reason for, the violation.

Miscellaneous rules for specific problems

Revenue Procedure 2026-34 specifies in its appendix numerous corrections for specific errors, including these corrections for defined benefit plan errors:

• Late distributions. The participant’s accrual should be increased to take into consideration a delay in payment using the plan’s actuarial equivalencies in effect on the date that the distribution should have been made. The equivalencies are the assumptions used for all optional forms of payment (regardless of whether the payment would have otherwise been subject to the present value assumptions). If more than one year is involved, compound interest is required.
• Spousal consent. A failure to obtain spousal consent may be corrected by notification of the affected participant and of the spouse to whom the participant was married at the time of the distribution. Either the spouse can provide consent or the participant may repay the distribution and receive a qualified joint and survivor annuity.
• Failure to obtain spousal consent for a loan. The plan must notify the participant and spouse (at the time of the failure is discovered). If the spouse consents, there is no further issue. If the spouse does not consent and the loan is not repaid, the spouse’s interest in the participant’s benefit must be protected (as if there was no loan).
• Failure to provide a suspension of benefits notice for participants who remain employed after normal retirement age. This failure is corrected by providing the suspension notice and increasing the participant’s accrued benefit each year for the period for which the notice was not provided by the greater of the benefit the participant would have accrued and the prior year’s benefit increased actuarially.
• Inadvertent overpayments. An inadvertent overpayment that involves exceeding an IRC benefit limit usually requires corrective payment to keep the plan qualified. Other inadvertent payments do not require corrective payment. It is up to the plan fiduciary whether to try to recover an overpayment from the participant. If the fiduciary tries to recover, ERISA contains specific limits on the recovery.
• Locating lost participants. The use of a commercial locator service that meets certain requirements is deemed to satisfy the duty to take reasonable actions to find a lost participant.
• Retroactive corrections. A plan may be amended to conform the terms to prior operation provided the correction does not violate nondiscrimination or cutback rules. The correction must be more favorable to the participant than the existing provision. All affected participants must be included in the correction.

The Revenue Procedure 2026-34 appendix also contains examples of typical mistakes in 401(k) and other defined contribution plans. When a mistake is discovered, plans should follow the specific correction methods in the appendix for the specific violation.

For example, there are specific corrections for failures related to:

• Providing a participant with an opportunity to elect deferrals
• Following a participant’s deferral election
• Making any or the appropriate matching contribution
• Failure to follow after-tax contribution elections

There are special correction rules for 401(k) plans with safe-harbor provisions as opposed to non-safe-harbor provisions, and special correction rules for plans with automatic enrollment provisions.

In most situations correction requires the plan sponsor to provide missed matches and additional employer contributions, along with lost earnings.

Next steps for plan sponsors

The expansion of the EPCRS is good news for plan sponsors. Segal’s consultants and compliance staff have helped many plans self-correct and apply for VCPs. The key to doing this successfully, and one of the requirements of EPCRS, is having established policies and procedures designed to promote compliance, identify mistakes and support timely correction.

Segal can help plan sponsors understand and make effective use of the expanded self-correction options, from assessing whether an issue qualifies for self-correction to strengthening the processes needed to support and document the correction. We can also help determine when the VCP may still be appropriate.