Retirement Plan Corrections Program Updated by the IRS

The IRS Employee Plans Compliance Resolution System (EPCRS) permits businesses of any or organization that sponsors a retirement plan (including SEP and SIMPLE IRA plans) to identify and correct plan failures. EPCRS offers three correction programs:

  • Self-Correction Program (SCP) – Correct certain plan failures without contacting the IRS or paying a user fee.
  • Voluntary Correction Program (VCP) – Correct failures not eligible for SCP or get IRS written agreement that specified failures were properly corrected.
  • Audit CAP – Resolve failures discovered during an IRS audit that can’t be corrected using SCP.

Recently the IRS issued Rev. Proc. 2021-30 PDF updating EPCRS, making several major changes and other revisions to the correction programs. The following are highlights of some of the changes.

Expanded Self-Correction Options

  • Significant operational failures: The correction period for self-correction of significant operational failures is extended from two to three years, effective July 16, 2021.
  • Retroactive plan amendments: The revenue procedure removes the requirement that all participants in the plan benefit from the retroactive amendment, making it easier to use retroactive plan amendments to correct operational failures under SCP, effective July 16, 2021.

Overpayment Correction Options Under EPCRS

Expanded correction principles allow plan sponsors to fix operational failures when plan participants or beneficiaries receive payments in excess of the plan’s written terms, effective July 16, 2021. The new principles reduce the need to seek repayment from participants or beneficiaries who received overpayments and, in some cases, do not require the plan sponsor to reimburse the plan for overpayments to participants.

Anonymous VCP Submission Changes

  • Anonymous submissions: Effective January 1, 2022, the IRS eliminated the procedures that permitted anonymous or John Doe VCP submissions. Anonymous VCP submissions made on or after January 1, 2022, will not be processed by the IRS.
  • Anonymous pre-submission conference: Effective January 1, 2022, the IRS will permit plan sponsors or their representatives to make an anonymously 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 Safe Harbor Correction for Automatic Enrollment Failures

The sunset of the safe harbor correction method available for missed elective deferrals for eligible employees who are subject to an automatic contribution arrangement in Section 401(k) or 403(b) plan is extended by three years, from December 31, 2020, to December 31, 2023.

Miscellaneous Changes

  • The limits on small overpayments and excess amounts that don’t require correction are increased from $100 to $250.
  • Effective January 1, 2022, sanction amounts owed to the IRS as part of Audit CAP must be paid electronically through the Pay.gov website.
  • Several items were revised to update citations or cross-references, provide additional clarity, and other small changes.

More information on correcting plan errors is listed here.