On Aug. 14, 2008, the Internal Revenue Service issued Revenue Procedure 2008-50, which updates the voluntary correction program for employee retirement plans – known as the Employee Plans Compliance Resolution System (EPCRS). The revised procedures generally become effective Jan. 1, 2009; however, plan sponsors may begin using the procedures for corrections on or after Sept. 2, 2008.
EPCRS allows retirement plan sponsors to correct certain administrative and plan document errors, and retain tax-favored status of the plan during the correction process and thereafter.
These changes to EPCRS are evidence that the IRS is continuing to encourage corrections in the interest of keeping retirement plans qualified for the benefit of participants and plan sponsors, and confirmation that the sanctions will be much higher if the failures are discovered during an IRS examination. In either case, correction will be required and should be pursued sooner rather than later.
In revising EPCRS, the IRS has made numerous welcome changes, the most significant of which are briefly described below:
- A correction method has been added for certain plan loan failures. Specifically loans that violate section 72(p) of the Internal Revenue Code (for example because of a default) may now be corrected even if the loans do not violate the terms of the plan or if the plan does not contain the required loan language; however, the plan language would be required to be able to correct under the DOL’s Voluntary Fiduciary Correction Program. Self Correction Program (SCP)
- The availability of the SCP has been expanded to cover certain situations where the plan is already under examination by the IRS.
- New examples have been added to show how corrections are to be made for the exclusion of employees from 401(k) plans.
- The correction methods for section 401(k) failures now expand to cover catch-up and Roth elections, as well as the failure to implement, or incorrect implementation of, participant elections.
Voluntary Correction Program (VCP)
- To enable more rapid processing of those failures that are corrected using the standard correction procedure, the revised EPCRS includes a sample of:
- Streamlined application for several specified violations under VCP, such as failure to amend plans for law changes, loan problems, failure to make minimum distributions, excess elective deferrals by 401(k) plan participants, and plans established by ineligible employers
- Application format for all other VCP applications
- Additional requirements have been added for certain failures that result in excise taxes, and to address requests for relief from excise taxes under Internal Revenue Code sections 4972, 4973, 4974, and 4979.
- The requirements for submitting a determination letter application when correcting certain failures by plan amendment have been revised.
If you have any questions regarding the new EPCRS procedures or other compliance issues, please contact one of the members of Reed Smith’s employee benefits team listed below, or the Reed Smith attorney with whom you regularly work.