Earlier this year, the IRS issued a revised version of the Employee Plans Compliance Resolution System ("EPCRS") in Rev. Proc. 2019-19. Most significantly, the revised EPCRS gives plan sponsors the opportunity to self-correct certain types of errors that were not previously eligible for self-correction.
Expansion of Self-Correction through Retroactive Amendment
Previously, EPCRS permitted self-correction through a retroactive amendment only in a few instances. These included adopting retroactive amendments in certain cases when:
- The plan offered hardship distributions or loans when the plan document did not permit them.
- The plan had certain operational failures related to annual compensation limits.
- The plan allowed certain individuals to participate who were not eligible under the terms of the plan document.
The revised EPCRS now allows self-correction through a retroactive amendment in two additional circumstances:
- The plan may correct any operational error through a retroactive plan amendment if the plan amendment would result in an increase of a benefit, right or feature, applies to all employees eligible to participate in the plan, and is permitted under the Code and satisfies the correction principles set forth in EPCRS.
- The plan sponsor may retroactively amend the plan to increase the number of plan loans allowed at any one time.
Expansion of Self-Correction Opportunities for Plan Loan Errors
Under the prior versions of EPCRS, all plan loans had to be resolved through VCP or the Audit CAP program. The revised EPCRS permits loan errors to be self-corrected, with two important restrictions:
- Loan errors cannot be self-corrected if the terms of the loan did not comply with the limitations of the Code.
- Because the Department of Labor does not accept self-correction as an acceptable mode of correction, a complete correction with the Department of Labor may still require a VCP filing or correction via Audit CAP.
Ultimately, although the revised EPCRS provides plan sponsors with some significant opportunities to self-correct new types of errors, we recommend consulting with counsel on any self-correction to ensure that it complies with the terms of the revised EPCRS procedure.
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