Updates To IRS Correction Program For Retirement Plans

Did you know the Internal Revenue Service (IRS) has an Employee Plans Compliance Resolution System (EPCRS) that enables retirement plan sponsors to correct retirement plan failures? The EPCRS allows corrections in three different areas:

Self-Correction Program (SCP) – this program allows for the correction of certain plan failures without contacting the IRS or paying a user fee.

Voluntary Correction Program (VCP) – this program allows for the correction of failures not eligible for SCP and solicits approval from the IRS that the failures were properly corrected.

Audit Corrective Action Program (CAP) – this program corrects errors discovered during an IRS audit that can’t be corrected using SCP.

The IRS has made significant changes to the EPCRS in Revenue Procedure 2021-30.  These revisions include:

Overpayments Correction Options: This option enables plan sponsors to fix operational failures when plan participants or beneficiaries receive payments from defined benefit plans that exceed what is permitted by the terms of the plan, effective July 16, 2021. This reduces the need to seek repayment from participants or beneficiaries who received overpayments, and in some cases, does not require the plan sponsor to reimburse the plan for overpayments to participants.

Expansion of Self Correction for Significant Operational Failures: This extends the correction period of significant operational failures from two to three years, effective July 16, 2021.

Expansion of Self Correction for Retroactive Plan Amendments:  This makes it easier to use retroactive plan amendments to correct operational failures by removing the requirement that all participants in the plan benefit by the retroactive amendment, effective July 16, 2021.

Anonymous VCP submissions: Effective January 1, 2022, Rev. Proc. 2021-30 eliminates anonymous submissions under VCP.

Anonymous Pre-Submission Conferences: Effective January 1, 2022, the IRS will permit plan sponsors or their representatives to make an anonymous written request for a pre-submission conference to discuss a potential VCP submission at no cost to the plan sponsor. Following the pre-submission conference, if the plan sponsor submits a VCP request, it can no longer be anonymous.

Extension of Automatic Enrollment Failures: This option extends the sunset of the safe harbor correction method to correct missed elective deferrals for eligible employees subject to an automatic contribution feature in Section 401(k) or 403(b) plans.

Increased Threshold for De Minimis Correction Amounts:  This option increase from $100 to $250 the threshold for certain de minimis amounts for which a Plan Sponsor is not required to implement correction.

If you have any questions regarding your retirement plans, you can refer to the IRS website or contact us for additional information.