IRS on March 27 released a series of changes to its Employee Plans Compliance Resolution System that it said would improve the correction programs. Among the modifications to Revenue Procedure 2013-12 announced are new options for correction methods to recoup participant overpayments and lower compliance fees for participant plan loan errors.
The 17-page Rev. Proc. 2015-27 does not supersede Rev. Proc. 2013-12, the agency said, but it is intended to update and clarify the previous guidance. It applies to both defined benefit and defined contribution plans covered by requirements in the federal Tax Code. It will be officially published in the Federal Register on April 20.
EPCRS comprises three components that roughly progress from less to more serious error resolution: the Self-Correction Program, the Voluntary Correction Program and the Audit Closing Agreement Program, known as Audit CAP.
Overpayment Recovery Flexibility Urged
Among the changes introduced by IRS in the document are a call for flexibility in correcting administrative failures that led to overpayment of benefits when these place an undue burden on participants and beneficiaries. “The Service has been informed that some plans have demanded recoupment of large amounts from plan participants” to correct long-term plan errors, with these demands causing financial difficulty for the participants, especially if they are elderly, the guidance said.
Instead, IRS said, “… depending on the facts and circumstances, correcting an overpayment under EPCRS may not need to include requesting that an overpayment be returned to the plan by the participants and beneficiaries.”
The new document gives some examples of alternative overpayment corrections, and seeks comments on the issue.
Another change announced reduces VCP plan loan compliance fees. A new chart gives details about loan failures in VCP submissions that do not affect more than 25 percent of the plan sponsor’s participants in the year in which the failure occurred, and if the failure is the only one described in the submission. For example, if there are 13 or fewer participants with loan failures in the submission, the compliance fee becomes $300. Previously, it was $375 for plans with up to 20 participants.
However, IRS said, the change was made mainly to give a better method for figuring such fees for large plans that have a relatively small number of loans not satisfying Section 72(p) requirements.
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