The Internal Revenue Service recently issued an updated version of the Employee Plans Compliance Resolution System (“EPCRS”), which allows companies to voluntarily correct errors in the administration and documentation of their retirement plans (including 401(k) and 403(b) plans). IRS Revenue Procedure 2013-12 continues EPCRS, but makes a number of changes and adds clarity to several areas of the program that caused confusion in the past.
The new guidance keeps in place the three basic EPCRS correction components: (1) self-correction under which plan sponsors simply correct certain types of errors without any formal IRS filing; (2) voluntary correction program (VCP) under which plan sponsors file an application with, and receive a formal compliance statement from, the IRS approving the correction method; and (3) audit closing agreement program (Audit CAP), under which errors discovered during an IRS audit can be corrected without jeopardizing the plan’s tax qualified status.
Significant changes and clarifications to EPCRS in Revenue Procedure 2013-12 include:
- An overhaul of the VCP submission process, including new required forms (Forms 8950 and 8951) and a new address for VCP submissions;
- Formal processes and guidance for correcting plan document failures under 403(b) plans;
- Clarification regarding the use of qualified nonelective employer contributions (QNECs) to correct certain nondiscrimination testing failures (including the IRS position that corrective QNECs cannot be paid from plan forfeiture amounts);
- Guidance for Code §436 failures in defined benefit plans (benefit limitations based on the plan’s funded status);
- Clarification on the procedures that must be followed to locate lost participants;
- Relief for failing to adopt amendments required in connection with a determination letter;
- Update of the Audit CAP sanction schedule for non-amendment failures; and
- Clarification and additional guidance on certain types of corrections, including excluded employees, early inclusion of employees, spousal consent and late plan amendments
The new rules become effective on April 1, 2013, however, plan sponsors may submit VCP applications using the new rules (including, the new IRS forms) before the effective date. Sponsors also may continue using the EPCRS rules in Revenue Procedure 2008-50 instead, until March 31, 2013, but those submissions must be filed at the VCP Washington address.