On July 16, 2021, the IRS issued Revenue Procedure 2021-30, an updated version of the Employee Plans Compliance Resolution System (“EPCRS”). Retirement plan sponsors may use EPCRS to correct certain compliance mistakes, and avoid the adverse tax consequences associated with plan disqualification.
- Modification to Existing Overpayment Correction Method. The new guidance modifies the existing overpayment correction method to allow overpayment recipients to be given a choice as to whether to repay an overpayment in a lump sum, through an installment agreement or through future reductions in benefit payments.
- New Overpayment Correction Methods. The guidance introduced two new methods to correct operational failures that arise when plan participants or beneficiaries receive payments from a defined benefit plan that exceed what is permitted by the terms of the plan. Each of those new methods is described below.
- Funding Exception Correction Method. This method provides that corrective payments are not required if the plan satisfies a certain funding level. This method applies to defined benefit plans that are subject to Internal Revenue Code section 436, and therefore does not apply to governmental plans and non-electing church plans.
- Contribution Credit Correction Method. This method provides that the amount of an overpayment that must be repaid to the plan is reduced by (1) the cumulative increase in the plan’s minimum funding requirements attributable to the overpayment during a specified period (including the increase attributable to the overstatement of liabilities); and (2) certain additional contributions in excess of minimum funding requirements also reduce the amount that must be repaid to the plan under this correction method.
- Expansion of Self-Correction for Retroactive Plan Amendments. The guidance makes it easier to use retroactive plan amendments to correct operational failures by removing the requirement that the retroactive amendment must benefit all plan participants. This change became effective on July 16, 2021.
- Expansion of Self-Correction for Significant Operational Failures. The guidance extends the end of the self-correction period for significant operational failures from the last day of the second plan year following the plan year for which the failure occurred to the last day of the third plan year following the plan year for which the failure occurred. This change became effective on July 16, 2021.
- Anonymous Submissions. The guidance eliminates anonymous submissions under VCP, effective January 1, 2022. However, effective January 1, 2022, the IRS will permit plan sponsors or their representatives to make an anonymous written request for a pre-submission conference to discuss a potential VCP submission at no cost to the plan sponsor. If the plan sponsor submits a VCP request following the pre-submission conference, it can no longer be anonymous.
- Extension of Automatic Enrollment Failures. The guidance extends the sunset of the safe harbor correction method to correct missed elective deferrals for eligible employees subject to an automatic contribution feature in Section 401(k) or 403(b) plans. The sunset date of the safe harbor correction method has been extended from December 31, 2020 to December 31, 2023.
- Increased Threshold for De Minimis Correction Amounts: The guidance increased from $100 to $250 the threshold for certain de minimis amounts for which a Plan Sponsor is not required to implement correction.