On New Year’s Eve, the IRS issued its long-awaited update to the Employee Plans Compliance Resolution System (EPCRS) in Revenue Procedure 2013-12. The EPCRS is an important IRS program that plan sponsors use to correct operational and document errors to their qualified retirement plans. These new changes to the EPCRS are generally effective April 1, 2013, but plan sponsors may elect to use the new EPCRS rules for submissions on or after December 31, 2012.
The EPCRS continues to consist of three programs that plan sponsors can, and in some cases must, use to correct operational and document errors: (i) the voluntary correction program (VCP); (ii) the self-correction program (SCP); and (iii) the audit closing agreement program (Audit CAP).
The IRS made several important changes to EPCRS, some of which are intended to broaden its scope and others to make the correction process more efficient. The most significant changes to EPCRS are described below:
- New Forms 8950 and 8951: Each VCP submission is required to include the application Form 8950 and the compliance fee Form 8951. Submissions not including these new forms will be considered seriously deficient and will be returned to the plan sponsor (with the compliance fee, if no substantive processing of the case has occurred).
- Applies to 403(b) Plans: EPCRS generally permits plan sponsors maintaining 403(b) plans to correct plan document and operational failures made in tax years beginning on or after January 1, 2009, in the same manner as failures in other qualified plans. The application fee is reduced by 50 percent for VCP submissions to correct only the failure to timely adopt a 403(b) plan if the submission is mailed to the IRS on or before December 31, 2013.
- Governmental 457(b) Plans: The IRS will accept submissions outside of EPCRS for certain governmental 457(b) plans based on standards similar to EPCRS.
- Section 436 Corrections: Internal Revenue Code Section 436 restricts the accrual and payment of benefits from an underfunded defined benefit plan. The new EPCRS procedure allows correction for the failure to comply with Section 436.
- Lost Participants: The new EPCRS reflects that the IRS Letter Forwarding Program is no longer available to locate lost participants and provides a time extension of the SCP and VCP correction deadlines to locate lost participants.
- Correcting Missed Matching Contributions: The contribution does not have to be a qualified non-elective contribution (QNEC) and can be subject to the plan’s vesting schedule and distribution rules for matching contributions.
- QNEC for Nondiscrimination Failures: If an employer corrects certain nondiscrimination testing errors with a QNEC, the contribution may not be made from the plan’s forfeiture account.
- New Mailing Address: VCP submissions will no longer be mailed to Washington, D.C. They will be mailed directly to the IRS Service Center in Covington, KY.