Employee Plans Compliance Resolution System Updated by IRS

The Internal Revenue Service (the “IRS”) released Revenue Procedure 2013-12 on December 31, 2012, which provides new and revised procedures, rules and requirements for the IRS’s Employee Plans Compliance Resolution System (“EPCRS”).

Background

Under EPCRS, a sponsor of a retirement plan, such as a 401(k), profit-sharing, 403(b), or defined benefit plan, may voluntarily correct “qualification failures” in order to preserve the plan’s and the participants’ tax-favored status under the Internal Revenue Code of 1986, as amended. Depending on the type of failure and other factors, a qualification failure may be corrected under EPCRS’s Self-Correction Program (“SCP”), Voluntary Compliance Program (“VCP”), or Audit Closing Agreement Program (“Audit CAP”).

The IRS last updated EPCRS under Revenue Procedure 2008-50, which is now superseded by Revenue Procedure 2013-12. A plan sponsor may choose to correct qualification failures under EPCRS in accordance with either Revenue Procedure 2008-50 or Revenue Procedure 2013-12 until April 1, 2013, after which all corrections under EPCRS must be made in accordance with Revenue Procedure 2013-12.

Changes from Revenue Procedure 2008-50

Revenue Procedure 2013-12 made several significant changes to EPCRS, including, but not limited to, the following:

  • Expanded existing and established new correction methods for 403(b) plan failures
  • Revised procedures, forms, and fees for VCP submissions
  • Established correction methods for funding-based restriction failures
  • Clarified the actuarial factors used in calculating corrections for defined benefit plans
  • Revised correction methods for safe harbor 401(k) plan failures
  • Established new self corrections for recurring excess contributions to 401(k) plans under SCP
  • Revised Audit CAP sanctions for specific types of failures

Effect on Plan Sponsors

The changes made to EPCRS under Revenue Procedure 2013-12 may affect a plan sponsor’s ability to correct qualification failures under SCP, VCP and Audit CAP. A plan sponsor should not assume that a correction procedure it has used in the past is still valid.

For More Information

If you are aware of any potential qualification failures for your retirement plan, please contact the Stevens & Lee attorney with whom you normally work or a member of the Employee Benefits Group at Stevens & Lee to discuss your alternatives for correcting such failures and how Revenue Procedure 2013-12 may impact your plan.

This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, please see the disclaimer.

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