Latest version of popular IRS program provides expanded correction opportunities and additional streamlined procedures.
On August 14, 2008, the Internal Revenue Service (IRS) issued Revenue Procedure 2008-50 updating the Employee Plans Compliance Resolution System (EPCRS), the comprehensive system of correction programs for sponsors of qualified retirement plans. The components of EPCRS are the Self-Correction Program (SCP), the Voluntary Correction Program (VCP) and the Audit Closing Agreement Program (Audit CAP).
The new EPCRS program supersedes the 2006 version of the program and makes the following key changes:
- Expanded access to SCP. The new EPCRS
program clarifies when correction by plan amendment is
allowed under self-correction for 401(a)(17) failures,
hardship distribution failures, plan loan failures, and
failures related to early inclusion of otherwise eligible
employees. Also, the IRS expanded the timeframe within which
a plan sponsor can be treated as having substantially
completed self-correction, thereby precluding the IRS from
identifying the error for an audit issue.
- Excluded employees and errors in deferral
elections. The new program provides clear sample
correction methods for inadvertently excluding employees or
failing to correctly process participants' deferral
elections. The new EPCRS also modifies the corrections used
to address failures to include an eligible employee in a
401(k) plan, including corrections for catch-up, after-tax
and designated Roth contributions.
- Plan loan relief. The
new EPCRS program expands the availability of VCP for plan
loan violations. In addition, the compliance fee is reduced
for filings related to certain plan loan violations.
- Relief from excise/additional taxes. The
new EPCRS provides relief from the 10 percent additional
income tax on early distributions and various otherwise
applicable excise taxes.
- Correction of section 415 failures. The
new EPCRS includes specific rules on correcting section 415
annual addition errors for defined contribution plans.
- Calculation of earnings. The new program
clarifies when earnings for corrections may be computed using
the Department of Labor's VFCP Online
Calculator.
- Sample VCP application forms and expanded
streamlined VCP application procedures.
VCP's streamlined procedures have been significantly
expanded from three correction categories to nine categories
and a standardized application form is provided. A sample
application form for all other VCP applications is
provided.
Rev. Proc. 2008-50 is effective January 1, 2009. However, plan sponsors are permitted to apply the provisions of the revenue procedure on or after September 2, 2008. We will be circulating shortly a more detailed analysis of the new EPCRS program.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
