Buried under the news of tax reform and deep within an annual bulletin, the IRS has announced reduced fees for corrections made pursuant to its Voluntary Correction Program (“VCP”). However, fees will not be lower in every circumstance.
The EPCRS Program
Plan sponsors that make mistakes with respect to the operation or documentation of their qualified retirement plan can take advantage of the IRS’ Employee Plans Compliance Resolution System (“EPCRS”) to avoid the consequences of plan disqualification. The VCP is part of the EPCRS program where employers can self-report errors, pay a fee, and receive a compliance statement from the IRS.
The Good News: Reduced Fees Generally
On January 2, 2018, in its annual fee and procedures bulletin, the IRS announced new fees for VCP. As opposed to past practice, where VCP fees have been based on the number of plan participants, the new VCP fee schedule is based on “net plan assets,” as reflected on the most recently filed Form 5500-series return for the plan.
These fees now range from $1,500 to $3,500, as opposed to the fees in 2016 which ran as high as $15,000.
The Bad News: No More Reduced-Fee Loan and Other Specific Corrections
In the recent past, the IRS has offered reduced-fee corrections for specific types of failures, such as plan loan failures and failure to make required minimum distributions. Fees for these specific corrections were as low as $300 in some circumstances. These reduced fee-corrections are no longer available.
The IRS Will Not Provide Refunds
The IRS will not apply the fee structure retroactively. Therefore, employers who paid a higher per-participant fee prior to January 2, 2018, will not be entitled to a refund based on the new schedule. The IRS also clarified that submissions that are withdrawn and resubmitted under the new schedule will not be entitled to refunds.
What This Means for Employers
There is no limit to the number of errors that can be included in each VCP submission. Therefore, particularly for employers sponsoring large plans, it would be wise to consider the advantages and disadvantages of the new fee schedule. Additionally, employers should keep in mind that insignificant operational errors, significant operational errors, errors related to mergers and acquisitions, and ADP and ACP violations can be corrected using the Self-Correction Program (“SCP”) in most circumstances. The SCP program offers correction for errors without a fee, an application, or reporting requirements.