The Internal Revenue Service (IRS) issued Revenue Procedure 2015-27 on March 27, 2015 to update and clarify certain provisions of the Employee Plans Compliance Resolution System (EPCRS). EPCRS is the program the IRS established which allows plan sponsors to voluntarily fix plan errors using certain correction methods without jeopardizing a plan's tax qualified status. The new guidance in Revenue Procedure 2015-27 makes various modifications to, but does not replace, the existing provisions of EPCRS set forth in Revenue Procedure 2013-12. Notably, it provides guidance on the correction of overpayments from retirement plans paid to plan participants, specifically allowing plans greater flexibility implementing such correction methods, as summarized below.
Under the current EPCRS guidelines, an employer may generally correct overpayments by having the recipient return the overpayment to the plan. If the recipient does not return the entire overpayment amount, EPCRS provides that the employer or another person can contribute the difference to the plan. The IRS learned some plans have been interpreting these overpayment correction rules to mean that participants and beneficiaries are required to return overpayments to the plan in all cases, resulting in some plans demanding that recipients repay large amounts to the plan. Revenue Procedure 2015-27 clarifies that plans have flexibility correcting these overpayment failures. Depending on the nature of the overpayment, the guidance provides that an appropriate correction method may include having the employer or another person contribute the entire overpayment amount to the plan instead of seeking recoupment from the participant, or having the employer adopt a retroactive plan amendment to conform the plan document to the plan's operations. The guidance confirms that any correction method used must still be consistent with the correction principles of EPCRS (i.e., in any event, the plan must still be made whole).
The IRS intends to make further revisions to the EPCRS correction rules to provide additional guidance on the recoupment of overpayments and is requesting comments from the public on additional overpayment issues that plans think should be addressed. Comments must be submitted by July 20, 2015. We do plan on making some general comments on the rules, and could include any you may have if you would like. Revenue Procedure 2015-27 makes other miscellaneous changes to EPCRS, which include:
- Reducing the voluntary correction program (VCP) compliance fees involving required minimum distribution failures and plan loan failures;
- Expanding eligibility for the correction of frequent errors involving excess annual additions under the self-correction program (SCP); and
- Replacing the model forms and the IRS acknowledgment letter used for purposes of submissions under the VCP.
Revenue Procedure 2015-27 will be effective July 1, 2015; however, employers may apply the provisions of the Revenue Procedure as of March 27, 2015.