IRS Notice 2023-43 (May 25, 2023)
Available at https://www.irs.gov/pub/irs-drop/n-23-43.pdf
The IRS has issued Notice 2023-43, providing interim guidance on the expanded self-correction program under the Employee Plans Compliance Resolution System (EPCRS). As background, the SECURE 2.0 Act made sweeping changes to self-correction under EPCRS (see our Checkpoint article). While the changes technically took effect December 29, 2022, the extent to which the SECURE 2.0 Act changes plans’ current self-correction options is uncertain because the new law also grants the IRS considerable latitude to limit self-correction. For example, the SECURE 2.0 Act provides that the ability to self-correct plan errors does not apply if IRS guidance provides otherwise, and that corrections must conform to the “principles and corrections” in the 2021 version of EPCRS or any successor guidance. By specifically incorporating the current version of EPCRS (see our Checkpoint article), the SECURE 2.0 Act arguably delays any expansion of self-correction beyond what is permitted in that version. The IRS has now released Notice 2023-43 to provide limited interim guidance until an official revision of EPCRS is published.
Under Notice 2023-43, plan sponsors may self-correct an eligible inadvertent failure, including one relating to a plan loan, as long as the failure is not specifically excepted and certain conditions are met, including: (1) the failure is not identified by the IRS prior to any actions demonstrating a specific commitment to implement a self-correction; (2) the self-correction is made within a reasonable time after the failure is identified; (3) the failure is not egregious; and (4) the correction satisfies all provisions applicable to self-correction in the current version of EPCRS. Self-correction is not currently available for (1) failures to initially adopt a written plan; (2) significant failures in terminated plans; and (3) corrections of operational failures by a plan amendment that result in less favorable treatment for a participant than the original terms of the plan. Notice 2023-43 also suspends certain existing EPCRS requirements, including: (1) the requirement that a plan be the subject of a favorable determination letter; (2) the prohibition against self-correcting demographic failures and employer eligibility failures; and (3) the prohibition against self-correcting certain loan failures.
Notice 2023-43 does not address the recovery of plan overpayments, correction of automatic contribution errors, or any elements over which the DOL has authority. Plan sponsors may rely on Notice 2023-43 until the next version of EPCRS guidance is published, and may apply a good faith, reasonable interpretation of the SECURE 2.0 Act changes for any self-correction completed prior to the issuance of Notice 2023-43 and on or after December 29, 2022.
EBIA Comment: The SECURE 2.0 Act directs the IRS to revise existing EPCRS guidance within two years after its enactment (i.e., by December 29, 2024). Notice 2023-43 provides much-needed interim guidance that plan sponsors can rely on until an EPCRS revision is issued. Because of the limited, non-comprehensive nature of the guidance, however, plan sponsors should continue to work closely with their advisors before relying on the SECURE 2.0 Act for any self-correction method that is not currently permitted by EPCRS guidance and specifically addressed in Notice 2023-43. For more information, see EBIA’s 401(k) Plans manual at Sections XXXIV.C (“Programs to Encourage Compliance”), XXXIV.G (“Errors Involving Contributions”), XXXIV.J (“Errors Involving Participant Loans”), and XXXV (“Correcting Plan Mistakes: IRS’s EPCRS”).
Contributing Editors: EBIA Staff.
