The IRS Makes It Easier to Correct Plan Mistakes

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Properly managing a retirement plan requires compliance with dozens of rules and regulations originating from both the IRS and the Department of Labor (DOL). The task becomes more challenging when the plan “graduates” to large plan status and is required to undergo an annual benefit plan audit. When an error occurs in the plan administration process, employers can correct the issue using the Employee Plan Compliance Resolution System (EPCRS)., consisting of three programs, including the Voluntary Correction Program (VCP). Various plan errors can be corrected by following established steps and remitting corresponding documentation. In fact, many times fees and penalties can be avoided. To make the resolution even easier, the IRS recently issued Revenue Procedure 2021-30 (RP), which implements several new changes. This includes the introduction of a free VCP pre-conference, an extended correction period for significant failures, and new guidance on the recovery of benefit overpayments. To help clients, prospects, and others, JLK Rosenberger has provided a summary of the key details below.

Key EPCRS Changes

  • VCP Pre-Submission Conference – The new regulations permit a plan sponsor to a free and anonymous conference. During this meeting, plan sponsors can outline and discuss proposed remedies to address existing plan failures. This allows for a discussion about the potential solution prior to submitting it to the Voluntary Compliance Program (VCP). These conferences will be held at the option of the IRS, but unfortunately, the guidance will be advisory only and non-binding. It is important to note that this program replaces the anonymous VCP Submission Procedure -which ends on December 31, 2021.
  • New Overpayment Correction Methods –The RP also introduces two new methods which plan sponsors can use to correct overpayment errors, including the Funding Exception Correction and the Contribution Credit Correction methods.
    • Funding Exception CorrectionUsing this method, corrective payments would not be required assuming the Adjusted Funding Target Attainment Percentage (AFTAP) at the date of correction is at least 100%. Under these conditions, only the future benefit payments to an overpayment recipient must be reduced to the correct amount. This means for purposes of the EPCRS, no additional corrective payments are required, nor would future benefits be impacted.
    • Contribution Credit Correction – Under this method, any overpayment which must be reimbursed can be reduced by the cumulative increase in the minimum funding requirements attributable to the overpayment. For purposes of the EPCRS, if the amount of overpayments is zero after the contribution correction is applied, then no further corrective payments are required.
  • Extended SCP Correction Period – There was also an extension to the correction period for plans using the Self-Correction Program (SCP). The change extends the correction period for significant failures from the last day of the second plan year following the year the failure occurred to the last day of the third year.
  • Electronic Payments – Starting in 2022, any plan required to submit payments for sanctions as part of an Audit Closing Agreement Plan will be required to make payment using the website. Paper checks and other forms of payment will no longer be accepted.
  • Safe Harbor Correction Method – There was also a three-year extension (from December 31st, 2020, to December 31, 2023) of the sunset of the safe harbor correction method. This is typically used by plan sponsors that committed missed elective deferrals for eligible employees subject to an automatic contribution feature.
Contact Us

The changes made by the IRS are designed to make navigating plan error correction more efficient. Unfortunately, there is inconsistency in when certain changes take effect, so it is important to consult with a qualified advisor to guide your efforts. If you have questions about the information outlined above or need assistance with a plan audit, JLK Rosenberger can help. For additional information, call us at 972-331-5917 or click here to contact us. We look forward to speaking with you soon.