If you make mistakes in your retirement plan, you may use the IRS Employee Plans Compliance Resolution System (EPCRS) to fix your mistakes and avoid the consequences of plan disqualification. The correction for a mistake should be reasonable and appropriate. The correction method should resemble one of the methods described in the Internal Revenue Code. You should consider all facts and circumstances when determining which method to use. Rev. Proc. 2021-30 PDF is the guide that governs the EPCRS program. There are three ways to correct mistakes under EPCRS: Self-correction Program (SCP) - Permits a plan sponsor to correct certain plan failures without contacting the IRS or paying a fee. Voluntary Correction Program (VCP) - Permits a plan sponsor to, any time before audit, pay a fee and receive IRS approval for correction of plan failures. Audit Closing Agreement Program (Audit CAP) - Permits a plan sponsor to pay a sanction and correct a plan failure while the plan is under audit. Discussed below is a general description of each EPCRS program. Self-correction Program To be eligible for SCP, the plan sponsor or administrator must have established practices and procedures (formal or informal) designed to promote and enable compliance with the law. A plan document alone does not constitute evidence of established procedures. SCP is available to correct: Operational problems - the failure to follow the terms of your plan. Rev. Proc. 2029-30, Section 8 describes the factors to consider when determining if operational failures are insignificant. The plan sponsor should follow the general correction principles in Revenue Procedure 2021-30, Section 6. Note that some operational failures can be corrected under SCP via retroactive plan amendments to match the written plan to the plan's operation if certain conditions are met. See Rev. Proc. 2021-30, section 4.05 and Appendix B section 2.07. Certain problems with the plan document, associated with qualified plans under IRC 401(a) and IRC 403(b), such as the failure to keep it current to reflect changes in the law if its discovered and corrected in a timely manner. See Rev. Proc. 2021-30, Sections 4.01, 4.05, 5.01, 5.02 and 9.02. Problems with participant loans—defaulted loans that were not paid back in a timely manner, or where a participant received more loans than what was permitted by the plan's written terms/loan policy or where spousal consent was not obtained as required by the plan's written terms. See Rev. Proc. 2029-30, Sections 4.05, 6.07 and Appendix B 2.07. For 403(b) operational failures that occurred before 2009, you must follow the definition of an operational failure in Rev. Proc. 2008-50, Section 5.02. SCP is not available for other types of errors, like the failure to adopt a written plan or to keep your plan current for recent law changes. SCP is also not available if you determine that your organization is not eligible to maintain a 403(b) plan. 403(b) plan sponsors should follow Rev. Proc. 2021-30 for failures that took place in 2009 and later years and Rev. Proc 2008-50 for failures that took place in 2008 and earlier years. The plan sponsor should follow the general correction principles in Rev. Proc. 2021-30, Section 6. A plan sponsor that corrects a mistake listed in Appendix A or Appendix B of Rev. Proc 2021-30 according to the correction methods listed may be certain that their correction is reasonable and appropriate for the failure. If needed, the plan sponsor should make changes to its administrative procedures to ensure that the mistakes do not recur. A qualified plan sponsor (not including a SEP or SIMPLE IRA plan sponsor) may correct significant operational failures within two years of the end of the plan year in which the operational failures occurred. The SCP may be used if the mistakes are deemed to be insignificant operational failures considering all facts and circumstances. When using SCP, the plan sponsor should keep adequate records to show correction in the event the plan is audited. There is no fee to use the self-correction program. Voluntary Correction Program The plan sponsor makes a submission to the IRS via Pay.gov that: includes a completed Form 8950 PDF, identifies the mistakes, proposes corrections using the general correction principles in Rev. Proc. 2021-30, section 6, proposes changes to its administrative procedures to ensure that the mistakes do not recur, pays a user fee, and may include Form 14568, Model VCP Compliance Statement PDF, and Forms 14568-A through 14568-I (Schedules). The IRS issues a Compliance Statement detailing mistakes identified by the plan sponsor and the correction methods approved by the IRS. The plan sponsor corrects the identified mistakes within 150 days of the issuance of the Compliance Statement. While the IRS is processing the submission, Employee Plans will not audit the plan, except in unusual circumstances. Audit Closing Agreement Program The plan sponsor or plan is under audit. The plan sponsor: enters into a Closing Agreement with the IRS. makes correction prior to entering into the Closing Agreement. pays a sanction negotiated with the IRS. It will not be excessive and will bear a reasonable relationship to the nature, extent, and severity of the failures. The sanction is determined based on facts and circumstances, including the following relevant factors The presence of internal controls designed to ensure that the plan had no failures or that such failures were identified and corrected in a timely manner; Number of affected employees; Impact on non-highly compensated employees; whether it's a demographic failure or an employer eligibility failure; Length of time failure occurred; The reason for the failure; The Maximum Payment Amount as defined in sections 5.01, 5.02 of Rev. Proc. 2021-30; See Rev. Proc. 2021-30, section 14 for additional details and factors The sanction paid under Audit CAP should be not be less than the fee paid under VCP. 401(k) Plan Fix-it Guide SEP Fix-it Guide SIMPLE IRA Plan Fix-it Guide SARSEP Fix-it Guide 403(b) Plan Fix-it Guide IRA-based plans additional resources IRS.gov / Retirement Plans / Correcting Plan Errors / SEP Fix-It Guide / EPCRS Overview
