On March 27, 2015 the Internal Revenue Service (IRS) released Revenue Procedure 2015-27 which modifies the Employee Plans Compliance Resolution System (EPCRS) set forth in Revenue Procedure 2013-12.
EPCRS is a comprehensive system of correction programs for sponsors of retirement plans that are intended to satisfy the requirements of §401(a), 403(a), 403(b), 408(k) or 408(p) of the Internal Revenue Code (the Code), but that have not met all of these requirements for a period of time. Depending on the circumstances, plan sponsors may correct a failure under (1) the Self-Correction Program (SCP), (2) the Voluntary Correction Program (VCP) or (3) the Audit Closing Agreement Program (Audit CAP), each detailed in Revenue Procedure 2013-12.
Modifications to the EPCRS
Rev. Proc. 2015-27 modifies Rev. Proc. 2013-12 in the following ways:
Correction Rules for Overpayments: When a plan pays amounts to participants or beneficiaries in excess of the amounts to which they are entitled under the terms of the plan or applicable law, Rev. Proc. 2013-12 requires an employer to take reasonable steps to have those overpayments returned to the plan. This generally requires plan sponsors to reduce future benefits payments (if possible) or make a demand for recoupment of money from plan participants and beneficiaries that received an overpayment.
The updated guidance clarifies that an appropriate correction does not necessarily require a demand for recoupment and provides that, depending on the nature of the overpayment, it may be appropriate to have the employer or another person contribute the amount of the overpayment (with interest) to the plan or to adopt a retroactive amendment to conform the plan document to the plan’s operations.
The IRS is seeking comments relating to the recoupment of overpayments through July 20, 2015 and has indicated that it intends to further modify Rev. Proc. 2013-12 as it relates to this topic.
Self-Correction of Section 415(c) Failures: To be eligible for SCP, Rev. Proc. 2013-12 generally requires that a plan sponsor or administrator have established practices and procedures reasonably designed to promote and facilitate overall compliance with applicable Code requirements. However, it also provides that a plan that provides for elective deferrals and nonelective employer contributions that are not matching contributions will not be treated as failing to meet this requirement if it regularly corrects violations of the annual defined contribution plan limits in Code §415(c) by refunding excess elective deferrals within 2-1/2 months after the end of the plan’s limitation year. Rev. Proc. 2015-27 extends this window for regular corrections of excess annual additions to 9-1/2 months after the end of the plan’s limitation year.
Determination Letter Application Not Required in Certain Cases: In certain situations, Rev. Proc. 2013-12 requires that a determination letter application to the IRS be part of the correction of a plan qualification failure if the correction includes a plan amendment. Rev. Proc. 2015-12 clarifies that a determination letter application is not required (1) in the case of corrective amendments made to pre-approved plans on which the adopting employer has reliance if such amendments are part of an adopted prototype or volume submitter plan on which the adopting employer continues to have reliance after the adoption of the corrective amendments or (2) if more than 12 months have passed since the distribution of substantially all of the plan assets following a plan termination.
Reduction of VCP Fees in Certain Cases: Rev. Proc. 2013-12 provides for a reduced VCP fee for certain plan sponsors if a plan’s sole failure is late payment of required minimum distributions after attainment of age 70-1/2 for 50 or fewer participants and certain other conditions are met. Under changes set forth in Rev. Proc. 2015-27, fee relief may be available in cases where up to 300 participants are affected by such a failure.
Additionally, Rev. Proc. 2015-27 reduces compliance fees for certain plans if the sole failure described in the submission is a plan loan failure under Code §72(p). Under the updated guidance, fees range from $300 to $3,000 and are based on the number of participants with loan failures.
Updated Submission Forms: Under Rev. Proc. 2015-27, any applicant electing to use model VCP submission documents must do so by completing specific IRS forms. Appendices C and D (which previously included the model VCP documents and the acknowledgement letter form) have been removed from EPCRS.
Timing of Correction: Rev. Proc. 2015-27 maintains the general requirement of Rev. Proc 2013-12 that specific corrections and administrative changes be implemented within 150 days of the date of the compliance statement. It clarifies, however, that if the plan sponsor submits a required determination letter application concurrently with the VCP submission, the deadline for adopting a corrective plan amendment is the later of 150 days after the date of the compliance statement and 91 days after a favorable determination letter is issued.
Miscellaneous: In addition to the above, several technical updates were made to EPCRS to revise citations as well as to delete reference to the Social Security letter forwarding program, which is no longer available.
The Revenue Procedure is generally effective July 1, 2015; however, plan sponsors are permitted, at their option, to apply its provisions on or after March 27, 2015.