On August 25, 2011 at 2:00 p.m. Eastern time, the IRS will sponsor a phone forum on the Employee Plans Compliance Resolution System (“EPCRS”). The phone forum will provide an overview and update on the EPCRS system, review common correction principles and discuss the most common qualified plan failures. To register for the phone forum, go to www.irs.gov, and enter the search terms “EPCRS Phone Forum” in the search box in the upper right-hand corner of the screen. You will be taken to the link for the registration page.
The EPCRS system provides three correction programs that allow qualified retirement plan sponsors to correct for certain plan document, operational, demographic and employer eligibility failures in their plans in order to preserve the tax deferred benefits for participants and avoid the imposition of income or excise taxes due to plan failures. Under the Self-Correction Program (“SCP”), plan sponsors are permitted to correct for certain insignificant and significant operational failures in their qualified plans without involving the IRS. Under the Voluntary Correction Program (“VCP”), the plan sponsor submits an application (and a compliance fee to the IRS) that identifies the qualification failure(s), outlines the methods that will be used to correct the failure(s) and explains the changes to be implemented to the plan’s administrative processes to prevent a reoccurrence of the same failure(s). The compliance fee is generally based on the number of participants in the plan. Under the Audit Cap program, the IRS has discovered the problem (usually upon a plan audit) and offers a resolution through the execution of a closing agreement after the plan sponsor has corrected the failures and paid a fine.
To help preserve the tax qualified status of retirement plans, Masuda Funai has assisted clients in selfcorrecting and filing numerous voluntary corrections for its clients. The most common type of error has been the plan sponsor’s failure to operate the plan in accordance with the plan terms. This type of error typically includes using an improper definition of compensation (failure to include or exclude commissions, bonuses, etc.), the inadvertent exclusion of eligible employees from plan participation, improper plan loan administration and/or a failure to allocate profit-sharing contributions appropriately. Whether a plan sponsor can self-correct or should voluntarily file a correction application with the IRS is often based on the particular facts and circumstances