Compliance News | July 29, 2021
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.
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:
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:
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.
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.
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.
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.
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.
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.
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.
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