May 8, 2019

Details of the Expanded Self Correction Program

The various rules and regulations associated with maintaining a 401(k), 403(b) or other retirement plan can often be overwhelming and challenging to follow. That’s why the IRS allows plan sponsors to disclose and resolve various plan errors using the Employee Plan Compliance Resolution System (EPCRS). The system which includes three types of correction programs and is designed to allow plan sponsors to correct errors before plan disqualification occurs. For minor issues, plan sponsors are allowed to correct basic mistakes using the self-correction program (SCP). While helpful for many Atlanta plan sponsors, in early April the IRS (EPCRS Revenue Procedure 2019-19) made additional changes that expand the scope of errors which can be resolved using the program. It’s now easier to fix certain plan document issues and operational failures, including plan loan issues, without having to make disclosures. To help clients, prospects and others become familiar with the changes, Wilson Lewis has provided a summary below.

Effective Date

The changes outlined in EPCRS Revenue Procedure 2019-19 are effective as of April 19, 2019.

Summary of Key Changes

• Plan Document Failures – Plan sponsors of a 401(k), 403(b) and other qualifying plans may correct certain plan document failures (except those that include an initial IRC 401(a) plan document or a failure to adopt an initial 403(b) plan document) within the two-year correction period. It’s important to note that plan document failures are always considered significant and must have a favorable IRS determination letter. Finally, it’s important to note that the late adoption of discretionary amendments is not considered a plan document failure. In addition, corrective amendments to resolve demographic failures that were not timely adopted are ineligible for correction under SCP.
• Plan Loan Failures – There are now several plan loan failures which may be eligible for correction under the SCP. These include failure to repay loans according to plan terms, failure to manage the number of outstanding participant loans, participant loans in default and the failure to obtain spousal consent when a participant takes a plan loan. While most of these failures can be corrected under SCP, there are still situations (failure to secure spouse consent for participant loan), which still necessitate relief under the Voluntary Correction Program (VCP).
• Retroactive Plan Amendments – The recent changes also permit a plan sponsor to correct plan errors through the issuance of retroactive plan amendments, assuming three conditions are met. First, the corrective amendment must result in an increase of the participant’s benefit, right or feature. Second, the increase mentioned in the first condition must be provided to all employees eligible to participate in the plan and finally, the increase must be permitted under IRC rules and should satisfy general SCP principles (as outlined in other EPCRS procedures).

Electronic Submission Requirement

It’s important to note that any submissions to the Voluntary Correction Program are now required to be completed electronically using the pay.gov website. While there was a period where both paper or electronic filings were accepted, the deadline for transition passed on March 31, 2019. This means that plan sponsors that have an error requiring a VCP submission will be required to disclose the error, corrective actions and pay the related fee online.

Contact Us

The recent changes to EPCRS offer more flexibility to Atlanta plan sponsors in resolving their plan document, loan and other failures. While these changes make it easier to resolve errors, it’s essential to maintain a robust compliance program to ensure your plan is operating according to stated regulations and plan documents throughout the year. If you have questions about the recent changes or need assistance with your 401k, 403(b) or other retirement plan audit, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.