Benefits

IRS Adjusts Voluntary Correction Program User Fees Starting January 2

The Internal Revenue Service (IRS) gave some larger-asset employer-sponsored retirement plans an unexpected break on Voluntary Correction Program (VCP) user fees in its first Internal Revenue Bulletin (IRB) of 2018, issued January 2.retirement

For many VCP filings by plans with a large number of participants, the new fees will be notably lower than in the past. Instead of fees based on the number of participants and capped at $15,000, the new fee schedule is based on plan assets and caps out at $3,500.

The simplified VCP user fees aren’t likely to be as beneficial for smaller-asset plans because of the shift to a plan-asset basis. Many sponsors with plan assets of around $1 million, for example, will find themselves assessed significantly higher fees when using the VCP to rectify problems with their qualified plans.

As long as an employer plan is not under a IRS audit, the plan sponsor can voluntarily correct operational and documentary errors under the VCP by filing the appropriate forms with the IRS and paying the necessary filing fee. Fees are published annually by the IRS and subject to change.

Effective Immediately

The changes were effective immediately upon the bulletin’s release; in past years, they have taken effect a few weeks after the year-opening IRB was posted. The bulletin did not mention a grace period for filers facing newly increased fees under the announcement.

In Revenue Procedure (Rev. Proc.) 2018-4, the IRS lists the following changes to the user-fee structure for VCP submissions, among other fee modifications:

  • $1,500 for plans with assets of $500,000 or less;
  • $3,000 for plans with assets of over $500,000 to $10,000,000; and
  • $3,500 for plans with assets of over $10,000,000.

The agency did not change the user fee for group submissions, or the special fee waiver for terminating orphan plans. It said that, in many cases, retirement plan sponsors determine the amount of a plan’s assets from its most recently filed Form 5500 return.

Many special fees have been eliminated, so the fee schedule above will apply to most types of VCP submissions. Some kinds of errors previously were eligible for reduced VCP fees. One example of a special fee that’s been discontinued is for a VCP submission covering only a small number of loan failures for nonkey employees, which formerly qualified for a reduced fee of as little as $300. Required minimum distribution (RMD) errors involving retirees also used to be granted reduced fees but were not mentioned for special treatment in the new protocol.

Rev. Proc. 2018-4 supersedes Rev. Proc. 2017-4, which also contained consolidated and revised procedures for determination letters and letter rulings issued by various representatives of the IRS.

“While this is certainly a welcome change, the IRS has eliminated the availability of reduced fees for streamlined filings. For example, in 2017 plan sponsors could correct minor plan loan and minimum required distribution errors for as little as $300; these streamlined options are no longer available,” said law firm Proskauer Rose LLP in a January 2 client bulletin on the changes to VCP fees.

The firm pointed out that, under the new schedule, the user fee for a VCP filing is the same for any type of error, and there is no limit on the number of errors that can be included in a submission. “Plan sponsors considering the pros and cons of self-correction vs. VCP should consider the new fee schedule,” the bulletin said.

Other retirement planning professionals writing about the change suggested that the increase in fees for small-asset plans may be an indication the IRS is favor of self-correction for the smallest plans to reduce the agency’s administrative burden.

Other Submission Fees Increased

The IRS also increased the user fees for these submissions:

  • Opinion letters on prototype individual retirement accounts or annuities, Simplified Employee Pensions (SEPs), Savings Incentive Match Plan for Employees Individual Retirement Account, (SIMPLE) individual retirement accounts (IRAs), SIMPLE IRA Plans, Roth IRAs and dual-purpose IRAs. User fees for these rose to $2,500 from $1,000; and
  • Form 5310 (Application for Determination for Terminating Plan), had its user fee raised to $3,000 from $2,300.

The agency also said it is revising Form 8951, “Compliance Fee for Application for Voluntary Correction Program (VCP),” so until a revised form is available, submitters should continue to use the Form 8951 (9-2016) version.

Jane Meacham is the editor of BLR’s retirement plan compliance publications. She has nearly 30 years’ experience as a writer/editor of financial services news.