The IRS recently published Revenue Procedure 2008-50, an updated version of its well-utilized Employee Plans Compliance Resolution System (EPCRS). Under EPCRS, sponsors of tax-qualified retirement plans may correct operational and documentation errors with IRS approval as described in the Revenue Procedure. As under the previous Revenue Procedure, many errors may be self-corrected within certain time periods without a requirement to notify the IRS. Other errors may be corrected through a submission to the IRS, including a “correction fee” based on the number of plan participants (or a reduced fee of $375 in the case of a late adopter of certain required amendments).
Among the more significant and helpful changes to the EPCRS procedure:
- Voluntary Correction Program filings involving only plan loans that affect fewer than 25% of participants will qualify for a reduced compliance fee of 50% of the usual fee. The update also includes a streamlined submission procedure for such applications. IRS has gone on record stating that it is not yet prepared to permit self-correction involving loans without IRS approval, because of its fear that a plan sponsor could withdraw money from the plan and later attempt to characterize such a misappropriation of funds as a loan to a majority shareholder.
- An employer’s failure to implement a participant’s election regarding salary deferrals (regular or Roth) may be corrected with a qualified nonelective contribution (QNEC) equal to 50% of the missed salary deferrals. However, the employer must match 100% of the missed salary deferrals. Missed catch-up contributions may be corrected with a QNEC equal to 25% of the missed catch-up deferrals.
- IRS has clarified the circumstances under which a determination letter will be issued, and indicated that a compliance statement covering a plan amendment should be disclosed in the next determination letter filing. IRS has also clarified the scope of the compliance statement and how IRS’s review of plan provisions in connection with an EPCRS submission, and a plan sponsor’s reliance on a compliance statement, fits into the new cyclical remedial amendment period procedures for requesting determination letters.
- If earnings are otherwise permitted under the procedure to be estimated (for example, in the case where the cost to calculate actual earnings is prohibitive), the Department of Labor’s Voluntary Fiduciary Correction Program online calculator may now be used to determine the earnings estimate.
- The final regulations under Section 415 of the Internal Revenue Code required any corrections for failure of the Code Section 415 annual addition or benefit limits to be made under EPCRS. The updated procedure includes instructions for correcting such errors (including under the self-correction provisions of the procedure).
- IRS has provided an even more streamlined procedure for submissions involving only a failure to timely adopt certain plan amendments.
As always, it is the IRS’s hope that by expanding the scope of the EPCRS procedure and continuing to make it easier to use, more plan sponsors will make submissions under EPCRS instead of waiting for an IRS audit to discover plan failures.