Last week the Internal Revenue Service (IRS) announced simplified user fees for submissions made to correct 401(k), 403(b) and other qualified retirement plan errors under its Voluntary Compliance Program (VCP).

Previously, user fees for a VCP submission ranged from $500 to $15,000, based on the total number of participants in the plan and offered a handful of alternative or reduced fees for certain types of standardized corrections, such as plan loan failures. The new fee structure is a simpler three-tier system ranging from $1,500 to $3,500 based solely on net plan assets (as shown on the most recently filed Form 5500, or if Form 5500 is not required, net plan assets as of the end of the most recent plan year), as follows:

Net Plan Assets

User Fee

$0 to $500,000

$1,500

Over $500,000 to $10,000,000

$3,000

Over $10,000,000

$3,500

Unfortunately, the new fee structure offers no alternative or reduced fees. As a result, the cost of correcting plan loan errors, late amendments, or missed minimum distributions will increase for most employers. For example, a large employer (plan greater than $10M in net assets) who made errors in administering a dozen or fewer plan loans could have corrected all of these loans for a $300 fee. Now the fee will increase to $3,500. For this reason, there will be more incentive to correct all errors in a single filing when possible.

The new user fees apply to all single plan VCP submissions, including anonymous submissions, but not to group compliance submissions, orphan plans, or 457(b) plans, which have their own separate fee structure.

The new fees take effect for any submissions mailed on or after January 2, 2018. Note that the IRS has indicated that it will not issue refunds for submissions mailed before January 2, 2018 that are withdrawn and resubmitted. At the time of this alert, the IRS has not updated the VCP forms to reflect the new fees and has indicated that employers should continue to use the old form (but submit the new fee).