April 9, 2015
IRS Reduces Cost of Correcting Auto-Enrollment Failures and Other Elective Deferral Failures
The Internal Revenue Service (IRS) released Revenue Procedure 2015-28, which modifies the safe-harbor correction requirements under the Employee Plan Compliance Resolution System (EPCRS), as described in Revenue Procedure 2013-12. Under EPCRS, the safe-harbor correction for improper exclusion of eligible participants and failures to implement participant elections with respect to pre-tax elective deferrals is generally for the plan sponsor to make a 100% vested contribution to the participant’s account equal to 50% of the participant’s missed pre-tax elective deferrals. If the missed elective deferrals would have been eligible for matching contributions, the plan sponsor also is required to make a contribution in the amount of the missed matching contribution (which can be subject to a vesting schedule).
Under Revenue Procedure 2015-28, for plans that have automatic contribution features, the plan sponsor does not have to make the 50% of missed elective deferrals contribution for a failure to implement the automatic contribution, or a failure to implement an affirmative election instead of the automatic contribution, if the failure is identified and corrected within 91/2 months after the end of the plan year of the failure (i.e., before the extended Form 5500 filing date). However, the requirement to make up the missed matching contribution still applies. This new safe harbor correction is available for failures beginning on or before December 31, 2020. The IRS will consider whether to extend the relief at a later date.
The new Revenue Procedure also provides other safe harbors, including safe harbors for certain earnings calculations, and for short-term missed elective deferrals in plans without automatic contribution features.
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