IRS Updates Under Employee Plans Compliance Resolution System

Two years after its last overhaul, the IRS has again revised the Employee Plans Compliance Resolution System (“EPCRS”), Revenue Procedure 2021-30, which permits retirement plan sponsors—including those of SEP and SIMPLE IRA plans—to correct plan failures.

EPCRS covers correction programs for:

• Self-correction of certain plan failures without contacting the IRS or paying a user fee.
• Voluntary Correction Program (“VCP”) for failures not eligible for self-correction and to get the approval of the IRS that the failures were properly corrected.
• Audit Closing Agreements resolving failures discovered during an IRS audit that cannot be corrected using self-correction.

The IRS has made the following significant changes and revisions to EPCRS:

Overpayments Correction Options

Expanded correction principles allow plan sponsors to fix operational failures when plan participants or beneficiaries receive payments from defined benefit plans that exceed what is permitted by the terms of the plan, effective July 16, 2021. The new principles reduce the need to seek repayment from participants or beneficiaries who received overpayments and, in some cases, do not require the plan sponsor to reimburse the plan for overpayments to participants.

Expansion of Self-Correction for Significant Operational Failures

This change extends the correction period of significant operational failures from two to three years, effective July 16, 2021.

Expansion of Self-Correction for Retroactive Plan Amendments

It is now easier to use retroactive plan amendments to correct operational failures by removing the requirement that all participants in the plan benefit by the retroactive amendment, effective July 16, 2021.

Anonymous VCP Submissions

Effective January 1, 2022, Rev. Proc. 2021-30 eliminates anonymous submissions under VCP.

Anonymous Pre-Submission Conferences

Effective January 1, 2022, the IRS will permit plan sponsors or their representatives to make an anonymous written request for a pre-submission conference to discuss a potential VCP submission at no cost to the plan sponsor. Following the pre-submission conference, if the plan sponsor submits a VCP request, it can no longer be anonymous.

Increased Threshold for De Minimis Correction Amounts

Increases the threshold for certain de minimis amounts for which a plan sponsor is not required to implement correction from $100 to $250.