The IRS has provided significant administrative and monetary relief for plans correcting errors involving employee contributions. The changes to the IRS’s Employee Plans Compliance Resolutions System (EPCRS) are set forth in Revenue Procedure 2015-28 and are summarized as follows:

  • Automatic Contribution Arrangements. If a plan fails to implement an automatic contribution feature or fails to implement an affirmative election of an eligible employee subject to such feature and the error does not go beyond the nine and one-half month period after the end of the plan year of the failure, no corrective contribution for missed elective deferrals is required, provided certain conditions are met. First, correct deferrals must begin no later than the earlier of (i) the first paycheck on or after the last day of the nine and one-half month period after the end of the plan year in which the failure first occurred, or, (ii) if the employer was notified of the failure by the affected eligible employee, the first payment of compensation made on or after the last day of the month after the month of notification. Second, the required notice of the failure is given to the affected eligible employee not later than 45 days after the date on which correct deferrals begin. Third, corrective contributions must be made not later than the period provided under the Significant Correction Program (SCP) for correction of significant operational failures (that is, the last day of the second plan year following the year of the failure) and are adjusted for earnings. Fourth, the failure occurs prior to December 31, 2020.
  • Missed Deferrals Not Exceeding Three Months. The new procedure includes alternative safe harbor methods for correcting elective deferral failures, whether or not automatic enrollment is used. The first safe harbor creates a “rolling correction period” for elective deferral failures that do not exceed three months. Under this safe harbor, no corrective contribution for the missed elective deferrals is required, provided certain conditions are met. First, correct deferrals begin no later than (i) the earlier of the first paycheck made on or after the three-month period that begins when the failure first occurred for the affected eligible employee, or, (ii) if the employer was notified of the failure by the affected eligible employee, the first paycheck made on or after the last day of the month after the month of notification. Second, notice of the failure that satisfies the revenue procedure is given to the affected eligible employee not later than 45 days after the date on which correct deferrals begin. Third, corrective contributions for any missed matching contributions are made not later than the time period for correcting significant operational failures under SCP and are adjusted for earnings.
  • Missed Deferrals Exceeding Three Months. For elective deferral failures that extend beyond three months but do not extend beyond the SCP correction period (or that do not satisfy the conditions noted above for the three-month correction), the revised procedure offers another correction method. This method also applies whether or not automatic enrollment is used. Under this method, the employer makes a corrective contribution equal to 25%--not 50%--of the missed deferrals. In order to use this safe harbor correction, the employer must satisfy certain conditions. First, correct deferrals begin no later than (i) the earlier of the first paycheck made on or after the last day of the second plan year following the plan year in which the failure occurred, or, (ii) if the employer was notified of the failure by the affected eligible employee, the first paycheck made on or after the last day of the month after the month of notification. Second, notice of the failure is given to the affected eligible employee not later than 45 days after the date on which correct deferrals begin. Third, corrective contributions (including the 25% corrective contribution and employer contributions to make up for any missed matching contributions) are made not later than the time for correction under SCP and are adjusted for earnings.
  • Earnings for Plans with Automatic Enrollment. There is also now a new safe harbor option for calculating earnings in plans with automatic enrollment. Specifically, if the affected employee has not made an investment option election, the plan may generally use the plan's default investment option to calculate earnings. However, any cumulative losses reflected in the earnings calculation may not result in a reduction in the required corrective contributions relating to any matching contributions.