On August 14, , Revenue Procedure was published updating the Employee Plans. Compliance Resolution System (EPCRS). Rev. Proc. , section (1)(a), modified and amplified. Rev. Proc. 9 clarified , I.R.B., , Chart of Significant Changes to EPCRS. Rev. Proc. Section. Topic. Changes from Rev. Proc. (new). VCP submission.

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Simplified Correction Procedures Calculating appropriate earnings is often a problem when correcting a plan failure. Although corrections of plan loan failures must still be made using VCP, Rev. Plan amendments under SCP can also be used to provide for hardship distributions or loans where such distributions were made but no plan provision authorizing them existed. Exclusions from catch-up contributions may be corrected through an employer contribution equal to 25 percent of the catch-up contribution limit for the year in which the employee was excluded plus applicable matching prlc and missed earnings.

In particular, EPCRS now provides that matching contributions or non-elective contributions plus any earnings that are forfeited because they would constitute excess annual additions should be prc in a suspense account. When the correction is made during the correction period for as little as 65 percent of the affected participants with the remaining corrections made in a diligent manner; or When an employer has initiated a correction during the correction period in a way that shows the employer is committed to completing the correction as expeditiously as practicable and the correction is completed within days after the end of the correction period.

Correction of Common Failures Under Rev. Another small but welcome change in Rev. According to IRS representatives, a streamlined application often can ;roc processed in a matter of weeks, rather than the six to nine months common with other VCP applications. For example, overpayments that are rolled into an IRA are subject to an excise tax.

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Periodically reviewing plan administration and procedures, and annually reviewing plan documentation and updating as necessary, are still the keys to ensuring that a qualified plan maintains its tax-advantaged status.

IRS Updates Correction Program for Qualified Plans

Regardless of which program an employer uses, EPCRS generally requires full correction of the failure, which means that the impacted participants and the plan must be made whole. However, the IRS has the discretion to not impose this excise tax going forward if an overpayment plus applicable earnings is returned to the plan from the IRA by the recipient. The revised EPCRS provides specific guidance on how to report deemed distributions on Form R where the employer desires specific treatment e. Certain Code Section a 17 compensation limit violations and errors involving the early inclusion of certain eligible employees may be corrected in this manner.

But when an error occurs requiring IRS involvement, the updated EPCRS should generally make it simpler and faster to get a plan back into legal compliance. EPCRS is a collection of three programs for correcting errors in the form and operation of qualified plans. The suspense account is then used to offset employer contributions in the current year and succeeding years. Please note that unsolicited emails and attached information sent to McGuireWoods or a firm attorney via this website do not create an attorney-client relationship.

To use SCP, an employer corrects the failure as specified by IRS procedures and then documents the correction in a detailed memorandum.

IRS Updates Correction Program for Qualified Plans | McGuireWoods

When it is not possible to make a precise calculation of the correction amount that the participant actually would have received, EPCRS allows reasonable estimates.

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If you are not a McGuireWoods client, do not send us any confidential information. For example, EPCRS now provides guidance on how to correct exclusions from catch-up contributions where eligible employees were denied the opportunity to make deferrals.

The suspense account must be adjusted for earnings, and as long as the suspense account maintains unallocated amounts, the employer may only make elective deferrals to the plan. VCP requires filing an application to seek IRS approval of the correction and the payment of a user fee. That means we may disclose unsolicited emails and attachments to third parties, and your unsolicited communications will not prevent any lawyer in our firm from representing a party and using the unsolicited communications against you.

Streamlined application procedures 20088-50 available for failures such as certain late amendments, ir loans, employer eligibility, excess elective deferrals and minimum required distributions.

We may not respond to unsolicited emails and do not consider them or attached information confidential. Calculating appropriate earnings is often a problem when correcting a plan failure. By clicking “accept” you confirm that you have read and understand this notice. In a welcomed clarification, Rev.

Iirs now also permits defaulted loans with terms less than the maximum permitted usually five years to be reamortized over the remaining portion of the maximum permissible term. For situations that require a regular VCP filing not covered by the streamlined application, Rev. The updated procedures are designed to be more user-friendly and recognize some of the practical realities of plan administration.