Latest version of popular IRS program provides expanded correction opportunities and additional streamlined procedures.
n August 14, 2008, the Internal Revenue Service (IRS) issued Revenue Procedure 2008-50 updating the Employee Plans Compliance Resolution System (EPCRS), the comprehensive system of correction programs for sponsors of qualified retirement plans. The components of EPCRS are the Self-Correction Program (SCP), the Voluntary Correction Program (VCP) and the Audit Closing Agreement Program (Audit CAP).
The new EPCRS program supersedes the 2006 version of the program and makes the following key changes:
- Expanded access to SCP. The new EPCRS program clarifies when correction by plan amendment is allowed under self-correction for 401(a)(17) failures, hardship distribution failures, plan loan failures, and failures related to early inclusion of otherwise eligible employees. Also, the IRS expanded the timeframe within which a plan sponsor can be treated as having substantially completed self-correction, thereby precluding the IRS from identifying the error for an audit issue.
- Excluded employees and errors in deferral elections. The new program provides clear sample correction methods for inadvertently excluding employees or failing to correctly process participants’ deferral elections. The new EPCRS also modifies the corrections used to address failures to include an eligible employee in a 401(k) plan, including corrections for catch-up, after-tax and designated Roth contributions.
- Plan loan relief. The new EPCRS program expands the availability of VCP for plan loan violations. In addition, the compliance fee is reduced for filings related to certain plan loan violations.
- Relief from excise/additional taxes. The new EPCRS provides relief from the 10 percent additional income tax on early distributions and various otherwise applicable excise taxes.
- Correction of section 415 failures. The new EPCRS includes specific rules on correcting section 415 annual addition errors for defined contribution plans.
- Calculation of earnings. The new program clarifies when earnings for corrections may be computed using the Department of Labor’s VFCP Online Calculator.
- Sample VCP application forms and expanded streamlined VCP application procedures. VCP’s streamlined procedures have been significantly expanded from three correction categories to nine categories and a standardized application form is provided. A sample application form for all other VCP applications is provided.
Rev. Proc. 2008-50 is effective January 1, 2009. However, plan sponsors are permitted to apply the provisions of the revenue procedure on or after September 2, 2008. We will be circulating shortly a more detailed analysis of the new EPCRS program.