IRS Retirement Plan Correction Program Expanded
By Rachel Fetters, QKA
Why are the recent changes to the IRS retirement plan correction program important?
The Employee Plans Compliance Resolution System (EPCRS) guidance offers several options for plan sponsors to correct certain operational failures and plan document failures. The IRS released Revenue Procedure (Rev. Proc.) 2019-19 in April 2019, updating its Self-Correction Program (SCP) for retirement plans under EPCRS.
Rev. Proc. 2019-19 expands the availability of self-correction options under the program in an effort to encourage compliance for plan sponsors by reducing the costs and simplifying certain procedures. These welcome changes to the program allow for self-correction of certain plan document failures, loan failures, and operational failures if plan sponsors follow specific corrective steps.
What are the changes to the EPCRS correction program?
Plan document failures, which include failures to timely amend a plan document for law or regulatory changes or to amend during a remedial amendment cycle may now be corrected under the SCP if the plan meets the following criteria.
The plan must have a favorable determination letter for an individually designed plan or a favorable opinion or advisory letter for a pre-approved plan.
Because a plan document failure is a significant failure, the failure must be corrected by the end of the second plan year following the year in which the failure occurred.
Loan failure corrective options that previously were only available to correct under the IRS’ Voluntary Correction Program may now be corrected under the SCP. Corrective options under the SCP for a defaulted loan now include the following.
Reporting the loan taxable (as a deemed distribution) in the year of the failure or the year of the correction
Re-amortizing the outstanding balance of the loan, including accrued interest
Accepting a lump-sum corrective payment in the amount of the outstanding balance, including accrued interest
Combining both re-amortizing and corrective payments
Obtaining after-the-fact spousal consent for a plan loan
Retroactively amending the plan document to increase the number of loans permitted to conform the plan document to how the plan has been operating
Certain operational failures may now be corrected with a retroactive amendment under the SCP to conform the plan document to the plan’s operation—if the amendment meets all of the following criteria.
The corrective amendment would result in an increase of a benefit, right, or feature.
The increase in the benefit, right, or feature is provided to all eligible employees.
The increase in the benefit, right, or feature is permitted under the Internal Revenue Code and satisfies the EPCRS correction principles.
Restrictions in using these expanded self-correction options under EPCRS may apply. Look to the IRS website under Correcting Plan Errors for additional guidance.