Advertisement

July 21, 2014

Internal Revenue Service (IRS) Updates Employee Plans Compliance Resolution System

On December 31, 2012, the Internal Revenue Service (IRS) issued Revenue Procedure 2013-12 updating the Employee Plans Compliance Resolution System (EPCRS), the comprehensive system of correction programs for sponsors of qualified retirement plans.  The components of EPCRS continue to be the Self-Correction Program (SCP), the Voluntary Correction Program (VCP) and the Audit Closing Agreement Program (Audit CAP).

The new EPCRS program supersedes the 2008 version of the program and makes a variety of changes.  Some of those key changes include:

  • Revised VCP Submission Procedures.  The new program requires that all VCP submissions be filed on the new IRS Forms 8950 and 8951.  Note that these forms are still in draft form and should be available soon.  A signed check must accompany Form 8951, and plan sponsors should be aware that the IRS may use the account information on the check to instruct the financial institution to make an electronic funds transfer from the account.  In addition, the IRS revised the EPCRS Appendices, such that the streamlined application schedules from Appendix F of Revenue Procedure 2008-50 are now contained in Appendix C, and Appendix F has been removed. 
  • Access Expanded to 403(b) Plans.  Plans subject to Section 403(b) of the Internal Revenue Code (Code) may now correct plan document and operational failures made in tax years beginning after January 1, 2009, in substantially the same manner as qualified plans.  Plan sponsors that failed to timely adopt a written plan document are encouraged to use VCP this year to correct the failure, as there will be a 50 percent reduction in the filing fee if the VCP submission is filed on or before December 31, 2013 (but only so long as the written plan document failure is the only failure in the submission).
  • Correction of Code Section 436 Failures.  The new program sets forth new procedures for correcting certain violations of the defined benefit funding-based restrictions set forth under Code Section 436.  In addition, if any type of corrective distribution to a participant or corrective amendment is made while the plan is subject to funding-based restrictions under Code Section 436, the new program provides that the plan sponsor may be required to make a corrective contribution to the plan. 
  • Correction of Matching Contribution Failure.  In the event that an employer fails to make a required matching contribution, the new program provides that in some cases a plan sponsor may make a corrective matching contribution rather than a qualified non-elective contribution (QNEC).  Such a corrective matching contribution, unlike a QNEC, would be subject to the plan’s vesting schedule.
  • Correction of Overpayment Failures.  The new program clarifies that a corrective contribution to a defined contribution plan (including a 403(b) plan) generally will not be necessary if the overpayment was related to a premature distribution of the participant’s vested benefit, provided that the plan sponsor makes a reasonable attempt to recover the overpayment (plus earnings) from the participant or beneficiary.
  • Correction of Certain Safe Harbor Plan Failures.  The new program sets forth procedures for correcting various failures under certain types of safe harbor plans, including the failure to provide a participant with the opportunity to make an affirmative deferral election and the failure to make the required nonelective contribution. 
  • Correction of Testing Failures.  The new program clarifies that corrective QNECs made to correct an ADP, ACP or multiple use test failure must satisfy the definition of a QNEC in the Treasury Regulations.  Under the current regulations, this means that forfeitures may not be used to fund QNECs. 
  • Correction of Code Section 415(c) Failures.  The new program clarifies that SCP may be used by certain plans that experience recurring annual additions in excess of Code Section 415(c) limitations, provided that corrective action is taken within two and a half months of the end of the plan’s limitation year.
  • Locating Lost Participants.  Because the IRS letter forwarding program was terminated on August 31, 2012, the new program revises the actions a plan sponsor must take to locate lost participants and beneficiaries.  The new program also provides a limited extension of the SCP and VCP correction periods for certain plan sponsors taking action to locate lost participants. 
  • Amendments to Pre-Approved Plans.  If a plan sponsor unilaterally amends its prototype or volume submitter plan to correct a qualification failure, the new program clarifies that adopting such an amendment generally will not preclude the plan sponsor from relying upon the plan’s opinion or advisory letter, provided that certain conditions are met.

Certain open questions remain unanswered.  The IRS continues to request comments on corrections for safe harbor notice failures, designated Roth contribution failures, and failures to implement automatic enrollment and automatic escalation in certain plan types.

Rev. Proc. 2013-12 is effective April 1, 2013.  However, plan sponsors are permitted to apply the provisions of the revenue procedure on or after December 31, 2012.

© 2014 McDermott Will & Emery

About the Author

Associate

Kary Crassweller is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office. She focuses her practice on a variety of employee benefits matters related to pension plans, 401(k) plans, executive compensation and cafeteria and welfare plans.

312-984-2046

About the Author

Associate

Lisa K. Loesel is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm's Chicago office. 

While in law school, Lisa was the Managing Editor for the Journal of Law Reform.

Lisa is admitted to practice in the State of Illinois.  

312-984-7608
Partner

Mary K. Samsa is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.

Mary has more than 15 years of experience and has represented a wide range of organizations including, but not limited to, Fortune 100 public companies, privately held companies, multinational organizations and not-for-profit hospital systems as well as educational institutions.  Mary’s primary practice focuses on executive compensation (for both taxable and tax-exempt entities) where she regularly advises on nonqualified deferred...

312-984-2142

Boost: AJAX core statistics

Legal Disclaimer

You are responsible for reading, understanding and agreeing to the National Law Review's (NLR’s) and the National Law Forum LLC's  Terms of Use and Privacy Policy before using the National Law Review website. The National Law Review is a free to use, no-log in database of legal and business articles. The content and links on www.NatLawReview.com are intended for general information purposes only. Any legal analysis, legislative updates or other content and links should not be construed as legal or professional advice or a substitute for such advice. No attorney-client or confidential relationship is formed by the transmission of information between you and the National Law Review website or any of the law firms, attorneys or other professionals or organizations who include content on the National Law Review website. If you require legal or professional advice, kindly contact an attorney or other suitable professional advisor.  

Some states have laws and ethical rules regarding solicitation and advertisement practices by attorneys and/or other professionals. The National Law Review is not a law firm nor is www.NatLawReview.com  intended to be  a referral service for attorneys and/or other professionals. The NLR does not wish, nor does it intend, to solicit the business of anyone or to refer anyone to an attorney or other professional.  NLR does not answer legal questions nor will we refer you to an attorney or other professional if you request such information from us. 

Under certain state laws the following statements may be required on this website and we have included them in order to be in full compliance with these rules. The choice of a lawyer or other professional is an important decision and should not be based solely upon advertisements. Attorney Advertising Notice: Prior results do not guarantee a similar outcome. Statement in compliance with Texas Rules of Professional Conduct. Unless otherwise noted, attorneys are not certified by the Texas Board of Legal Specialization, nor can NLR attest to the accuracy of any notation of Legal Specialization or other Professional Credentials.

The National Law Review - National Law Forum LLC 4700 Gilbert Ave. Suite 47 #230 Western Springs, IL 60558  Telephone  (708) 357-3317 If you would ike to contact us via email please click here.