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IRS Significantly Expands Self-Correction Options in Limited Update of EPCRS


· 5 minute read


· 5 minute read


Revenue Procedure 2019-19 (Apr. 19, 2019); IRS Webpage: Expanded Self Correction Program – EPCRS Rev. Proc. 2019-19 (Apr. 19, 2019)

Rev. Proc. 2019-19


The IRS has updated its Employee Plans Compliance Resolution System (EPCRS) effective April 19, 2019, to expand retirement plan sponsors’ ability to correct plan document, plan loan, and certain operational failures under the Self-Correction Program (SCP). While the update replaces the previous version of EPCRS (see our Checkpoint article), the changes primarily affect the SCP. The other EPCRS correction programs—the Voluntary Correction Program (VCP) and the Audit Closing Agreement Program (Audit CAP)—are largely unchanged. Here are highlights of the SCP changes for 401(k) plans:

  • Plan document failures. SCP may be used to correct certain plan document failures, but only if (1) the correction is completed by the last day of the correction period for significant failures (generally, the last day of the second plan year following the plan year for which the failure occurred), and (2) the plan has a favorable determination letter. SCP cannot be used to correct a failure to initially adopt a plan document or timely adopt a discretionary amendment.
  • Correcting operational failures by plan amendment. Prior to the update, EPCRS permitted the following operational failures to be self-corrected by plan amendment: violations of the compensation limit under Code § 401(a)(17); offering hardship distributions or plan loans under a plan that does not provide for them; and the premature inclusion of certain otherwise eligible employees. The update allows additional operational failures to be corrected by plan amendment so long as the plan amendment increases a benefit, right, or feature; the increase applies to all employees eligible to participate in the plan; and the increase is permissible under the Code and satisfies the EPCRS correction principles and any other applicable EPCRS rules.
  • Plan loan failures. SCP may be used to correct plan loan defaults using the methods previously available under VCP. Also, failures to obtain spousal consent for loans may be corrected under SCP by notifying the participant and spouse and obtaining consent. Violations of plan-imposed limits on the number of plan loans also may be corrected by a retroactive plan amendment. SCP still cannot be used to prevent a taxable deemed distribution when a plan loan’s terms do not properly limit the amount and length of a loan or require level amortization—only VCP or Audit CAP can be used for that—but SCP may be used to delay reporting of a deemed distribution on default until the year of correction instead of the year of the failure. (These corrections, and the conditions applicable to each, are summarized on the new IRS webpage explaining the changes to SCP.) Sponsors making loan default corrections under SCP will not be able to obtain no-action letters from the DOL under its Voluntary Fiduciary Correction Program, but such letters are available for corrections made under VCP.
  • Other spousal consents. Failures to obtain spousal consent for distributions other than plan loans may now be corrected using either of two alternative methods that were previously available only under VCP.

EBIA Comment: EPCRS continues to evolve, and more changes are in the works. The IRS is currently developing guidance on self-correcting overpayments, and has invited additional suggestions for improving EPCRS. These expanding opportunities for correction are welcome, but the revenue procedure’s continuing growth is making it more difficult to navigate. To help, the IRS has created a growing library of webpages devoted to error correction, and some offer particularly useful clarifications (e.g., see our Checkpoint article). For example, the webpage posted in connection with this update emphasizes a point that could easily be missed: The new ability to correct certain operational failures by retroactive plan amendment does not apply if the failure did not provide a uniform increase in benefits, rights, or features for all employees eligible to participate in the plan. An error that provided increased benefits for some eligible employees, or greater increases for some, would not qualify for correction under SCP (though correction might be available under VCP or Audit CAP). For more information, see EBIA’s 401(k) Plans manual at Sections XXXIV.J (“Errors Involving Participant Loans”), XXXIV.M (“Errors Involving Plan Documents”), and XXXV (“Correcting Plan Mistakes: IRS’s EPCRS”).

Contributing Editors: EBIA Staff.

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