Qualified Retirement Plan Correction Program Expanded and Revised

Jackson Walker
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Jackson Walker

The Internal Revenue Service updated and expanded the ability to correct plan operational and document defects with the new and improved Employee Plans Compliance Resolution System (Rev. Proc. 2021-30) (EPCRS). Issued and effective generally as of July 16, 2021, the EPCRS revises and expands the prior version of the same program in a number of ways, and continues its goal to encourage voluntary corrections with limited fees while protecting employees and their retirement benefits.

This article highlights some of the more significant changes for employers sponsoring qualified retirement plans.

Amended Voluntary Correction Program

While EPCRS no longer permits anonymous requests for correction under the Voluntary Correction Program (VCP) after December 31, 2021, effective January 1, 2022, EPCRS instead permits an anonymous pre-VCP submission conference where a representative, after completing certain forms, can conference with an IRS agent and receive comments from such agent on a non-binding basis.

Permitted Self-Correction

EPCRS permits self-correction without requiring any submission of even significant operational errors within three years of the year in which those errors occurred, provided the corrections otherwise comply with the current guidance in the EPCRS program for the self-correction program (SCP). Previously, the correction was required within two years.

EPCRS now defines that the correction must be substantially corrected by the end of the self-correction period by making the corrective contribution/adjustment to the plan accounts of 65% of the plan participants whose accounts were impacted by the operational error being corrected. This change clarifies the level of completion necessary for the SCP program to apply. Certain plan document failures can also be corrected under the SCP, provided the specified requirements are satisfied.

Expansion of the SCP period to three years will also provide entities acquiring other companies with retirement plan operation issues a little more time to fix those errors and clarity regarding how much must be fixed by the SCP deadline in order for the SCP to apply.

Addressed Overpayments

Overpayments of retirement plan benefits have been a frequent issue. EPCRS, in addition to addressing defined contribution plan overpayments, now provides a correction mechanism for defined benefit pension plan overpayments in a manner that considers the economic or funding status of the plan and the impact of the mistaken overpayments.

One consistent requirement for a defined benefit pension plan is that the plan’s benefit payment must be adjusted to the correct amount. There are alternatives that can be presented to the participant, spouse, or beneficiary receiving the payments. In addition, defined benefit pension plan sponsors may have correction choices depending upon the funded status of the pension plan involved.

As one makes corrections to pension distributions in the form of an annuity, plan sponsors need to consider spousal rights and the impact on the qualified joint and survivor rights as discussed in EPCRS.

Increased Small “Excess Amounts”

Another helpful change was for the IRS to increase the small “Excess Amounts” that did not require correction from $100 to $250. This avoids a plan’s need to distribute an Excess Amount if it is less than $250. This does not apply to an amount contributed in excess of the annual dollar limit on employee salary reduction contributions or other statutory limits on contributions. Care must be used to ensure that the amount qualifies as an “Excess Amount” under EPCRS before the plan decides it does not need to make a distribution.

EPCRS is now 140 pages in length, so this is a very high level summary of select points.

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.

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