September 24, 2021

Volume XI, Number 267

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IRS Updates EPCRS Correction Program for Qualified Retirement Plans

The IRS released Revenue Procedure 2021-30, a new iteration of the Employee Plans Compliance Resolution System (“EPCRS”), on Friday, July 16. EPCRS permits sponsors of eligible tax-qualified retirement plans and 403(b) plans to voluntarily self-correct certain operational errors either through the self-correction program (“SCP”), or with IRS approval through the voluntary compliance program (“VCP”). This Alert discusses a few important changes made to the EPCRS program by Revenue Procedure 2021-30:

  • Effective July 16, 2021, the overpayment correction procedures are expanded to add two new correction methods for defined benefit pension plans. These new correction methods reduce the need for plan sponsors to seek recoupment of overpayments made to plan participants and beneficiaries:

    • Funding Exception Correction Method – Under this new method, plan sponsors are not required to recoup an overpayment if the plan’s AFTAP on the date of correction is at least 100% (additional rules apply for multiemployer plans). No further corrective payments from any party are required and no further benefit payment reductions are permitted.

    • Contribution Credit Correction Method – Under this new method, the amount of the overpayment that is required to be repaid is reduced (but not below zero), by (a) the cumulative prior increase in the plan’s minimum funding requirements attributable to the overpayments and (b) certain additional contributions in excess of minimum funding requirements paid to the plan after the first of the overpayments was made. This reduction is referred to as a “contribution credit.” If the amount of the overpayment is reduced to zero after the contribution credit is applied, no further corrective payments from any party are required and no further reductions of future benefit payments are required.

In both cases, future benefit payments to the Participant must be reduced to the correct benefit payment amount.

  • Effective July 16, 2021, the procedure for correcting an operational failure by plan amendment has been revised to remove the requirement that the plan amendment apply to all employees eligible to participate in the plan. The plan amendment to increase the specific benefit, right, or feature may now be limited to the participants affected by the failure.

  • Effective January 1, 2022, the anonymous submission procedure under VCP is eliminated and is replaced with an anonymous, no-fee, VCP pre-submission conference procedure. Under this new procedure, plans sponsors will be permitted to make an anonymous written request to the IRS to request a pre-submission conference to discuss a VCP eligible plan failure at no cost to the plan sponsor. However, if a VCP is filed following the pre-submission conference, it cannot be anonymous.

  • Effective July 16, 2021, the time period for plan sponsors to self-correct most “significant” compliance failures through SCP is increased from two (2) years to three (3) years.

  • The safe harbor allowing a lower (or no) contribution to be made by plan sponsors correcting missed elective deferrals for eligible employees subject to an automatic contribution feature expired on December 31, 2020, but is now revived until December 31, 2023 (the safe harbor will not be available for failures that occur after December 31, 2023).

  • Effective July 16, 2021, the threshold for de minimis failures that are not required to be corrected under most EPCRS correction methods is increased from $100 to $250.

  • Beginning January 1, 2022, Audit CAP sanctions are required to be paid through the Pay.gov website (instead of by check to the IRS).

Copyright ©2021 Nelson Mullins Riley & Scarborough LLPNational Law Review, Volume XI, Number 209
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About this Author

Matthew R. Zischke Employment Lawyer Nelson Mullins
Associate

Matt Zischke has experience advising all types of employers on a variety of benefits matters, including design, implementation, and administration of employee benefit plans such as defined benefit, defined contribution (e.g. 401(k) and 403(b)), equity incentive, deferred compensation, and health and welfare arrangements. Matt’s experience includes SIMPLE IRA, ESOP, cafeteria, wrap, HRAs, HSAs, and severance plans.

404.322.6312
Ann E. Murray Employee Benefits Attorney Nelson Mullins Atlanta
Partner

Ann practices in the areas of employee benefits and executive compensation. She previously served as in–house benefits counsel for a publicly–traded company, so she is able to provide clients with a business–oriented and practical approach to help them stay in compliance with the ever–changing rules.

Ann’s clients include private and public employers, brokers, and individuals. She assists her clients with all types of HR and benefits–related matters, including those relating to:

 

  • ...

404-322-6603
Susan E. Stoffer Employee Benefits Attorney Nelson Mullins Atlanta
Partner

Sue practices in executive compensation and employee benefits law. Sue has spent more than 25 years, including many years with a large international law firm based in New York, counseling clients on equity and non-equity incentive plans and complex retirement plan and health and welfare plan compliance issues. Sue also served as the in-house employee benefits counsel for Time Warner Inc., assisting the company with challenging merger and acquisition issues as they related to a multitude of compensation and benefits arrangements covering a wide-spectrum of employee...

404-322-6374
Kenneth A. Janik Employee Benefits and Tax Attorney Nelson Mullins Columbia
Partner

Ken practices in the areas of executive compensation, taxation, ERISA and employee benefits, and corporate law. He is certified by the Supreme Court of South Carolina as a tax specialist.

803-255-9460
Kathryn B. Solley Employee Benefits Attorney Nelson Mullins Atlanta
Of Counsel

Kathy focuses her practice on executive compensation, employee benefits, and ERISA law. She works with public and private companies and their employee benefits needs and has worked as in-house counsel with a large electric public utility in the northeast and then with a large, publicly-traded multinational corporation. She also advises governmental pension plans and tax-exempt entities on employee benefits and executive compensation matters.

 

404-322-6375
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