IRS Issues New Correction Procedures for Retirement Plans

by King & Spalding
Contact

Authors, Eleanor Banister, Atlanta, +1 404 572 4930, ebanister@kslaw.com and James P. Cowles*, Atlanta, +1 404 572 3455, jcowles@kslaw.com

The IRS recently released new Employee Plans Compliance Resolution System (EPCRS) procedures.  The new EPCRS procedures update procedures that were last issued in 2008 (the “2008 EPCRS”).  Like the 2008 procedures, the new EPCRS permits three types of corrections, self-correction, voluntary correction with Internal Revenue Service (“IRS”) approval and correction on audit.  

The changes to the 2008 EPCRS are described in the Chart of Significant Changes to EPCRS published by the IRS.  The new procedures are effective April 1, 2013, but plan sponsors may begin using them now. This article describes a few of the more important revisions made to the 2008 EPCRS.

(1)        New and Revised Model Forms

The IRS has developed several new forms that must be used to make application under the Voluntary Correction Program (VCP).  All VCP submissions must now include a completed Form 8950 (Application for Voluntary Correction Program) and Form 8951 (Compliance Fee for Application for Voluntary Correction Program Submission Under EPCRS).  Most of the information the IRS requires in connection with a VCP application is now incorporated into these forms, which are available on the IRS website. 

The IRS has updated the model VCP submission documents in Appendix C of the ERCRS (Model VCP Submission Documents), including a new model compliance statement and schedules describing standardized descriptions of failures and corrections.  The new schedules replace the “streamlined application” process that was previously contained in Appendix F of the 2008 EPCRS.  The schedules address nonamenders, plan loan failures, eligibility failures, failure to distribute excess deferrals, and minimum distribution failures.  The applicant is not required to use the model documents, but if they are used, they may not be modified.

(2)        403(b) Plan Corrections 

EPCRS is now available to 403(b) plans in substantially the same manner as it is available to qualified plans, including the Self-Correction and VCP programs.  The compliance fee for failure to adopt a written plan has been reduced by 50% for VCP applications mailed to the IRS by the end of 2013.

(3)        457(b) Plan submissions

Submissions relating to IRC 457(b) plans will be accepted on a provisional basis outside EPCRS, but with standards similar to EPCRS. The program will generally be limited to funded plans sponsored by governmental entities, but unfunded IRC 457(b) plans maintained by non-governmental tax exempt entities may be considered if the plan was erroneously established to benefit non highly compensated employees. 

(4)        Section 436 Overpayments

The new EPCRS added the ability to correct benefits paid from defined benefit plans in excess of the benefit limitations of IRC 436.  Payment of benefits exceeding the IRC 436 limitations will be treated and corrected as overpayment failures.  The EPCRS also provides relief from IRC 436 for other corrective distributions from a defined benefit plan if the plan sponsor makes a special contribution to the plan to make the distribution.

(5)        Locating Lost Participants

EPCRS provides additional clarification and methods of locating lost participants, including certified mail to the individual’s last known address, use of the Social Security letter forwarding program, a commercial locator service, a credit reporting agency, or other internet search tools.  References to the IRS letter forwarding program have been removed because such program is no longer available. 

(6)        Clarification of when a Favorable Determination Letter Application is Required

A Favorable Determination Letter application must be filed with a VCP application or during Audit CAP if the plan sponsor is proposing to correct: 

  • an operational failure corrected by plan amendment within 12 months prior to the end of the plan’s remedial amendment cycle or in connection with a plan termination or
  • the failure to amend the plan for a disqualifying provision within the applicable remedial amendment period.   

A Favorable Determination Letter application is no longer required or permitted for a VCP submission for:

  • failures to timely adopt good faith, interim or optional law change amendments (unless submitted within 12 months of the end of the plan’s remedial amendment cycle or in connection with plan termination);
  • demographic failures (i.e. nondiscrimination testing failures); 
  • plan document failures corrected with IRS pre-approved plan documents; and
  • failure to adopt amendments required under the terms of a favorable determination letter.

(7)        Corrections for Improperly Excluded Employees

The plan sponsor is no longer required to contribute a qualified nonelective contribution (QNEC) to correct a failure to make a matching contribution to a non-safe harbor plan.  Instead the plan sponsor may make an employer nonelective contribution that is subject to the vesting schedule for matching contributions in the plan.

(8)        Corrective Employer Contribution for Overpayments may not be Required

Under the 2008 EPCRS, the plan sponsor was generally required to make a contribution to correct an overpayment that a participant refused to repay to the plan.  The EPCRS clarifies that a corrective contribution is not required if the Overpayment error arose in connection with a premature distribution from a defined contribution plan provided the distribution was otherwise made in accordance with plan terms.  For example, a plan sponsor would not be required to make a corrective contribution for an in-service distribution prior to age 59 ½  if the plan otherwise permitted distributions upon the attainment of age 59 ½.

Like under the 2008 EPCRS, early correction is easier to accomplish.  King & Spalding would be glad to discuss your plan’s operational and documentary compliance errors and to assist you in correcting those errors under the EPCRS. 

*Non-lawyer Employee Benefits Consultant

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© King & Spalding | Attorney Advertising

Written by:

King & Spalding
Contact
more
less

King & Spalding on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.