The Internal Revenue Service (IRS) should modify its Employee Plans Compliance Resolution System (EPCRS) to expand its use by retirement plans seeking to self-correct errors, according to the American Retirement Association (ARA). Doing so would reduce the burden of newly increased Voluntary Correction Program (VCP) fees (see, IRS Adjusts Voluntary Correction Program User Fees Starting January 2) on small businesses’ plans, ARA noted.
The ARA, in an April 4 comment letter to the acting commissioner of the IRS, said the recent rise in VCP user fees has made voluntary correction of plan errors at a reasonable cost “much more difficult, particularly for small businesses.” A lack of affordable self-correction options could dissuade more small businesses from sponsoring a retirement plan for employees, the group added.
The letter responded to IRS Revenue Procedure (Rev. Proc.) 2018-4, issued in early January, which lowered VCP-filing fees for plans with a large number of participants by establishing a new fee schedule based on plan assets rather than the number of participants.
The ARA recommended several steps that the IRS could take to modify EPCRS to ease plans’ self-correction of errors. Broadly, its suggestions fall under two categories: Remove barriers to the use of the IRS Self-Correction Program (SCP), part of EPCRS, and expand the types of errors that may be corrected through SCP.
To help remove barriers to SCP use, the ARA asked the IRS to consider the following:
- Extending the period for self-correction of significant errors and permitting self-correction of missed deferral opportunities, regardless of when the error occurred;
- Adding new earnings adjustment calculation methods to existing safe harbor methods in EPCRS;
- Clarifying the definition of insignificant operational failure; and
- Providing safe harbor corrections related to overpayments and earnings adjustment calculations in defined benefit (DB) plans.
Expand Errors Corrected
The ARA—the coordinating entity for five affiliate organizations representing all types and sizes of U.S. private-sector retirement plans—recommended that a greater number of errors be allowed to be corrected through SCP, including:
- Correction by retroactive amendment to comply with the actual operation of the plan where the benefits provided were higher than the plan provided for and such operation would not violate other qualification rules;
- Correction of nonamenders discovered within the SCP correction period for significant errors or during a merger or acquisition; and
- Certain corrections to plan loans.
The ARA said each of the program expansions proposed would encourage voluntary correction of plan errors in a manner consistent with EPCRS principles, without unduly increasing the risk of improper corrections. The group also suggested that these changes would reduce IRS burdens related to correction of common retirement plan errors, and could be “easily understood and applied by plan sponsors and practitioners,” among other benefits.
A few of the ARA’s recommendations reiterated points from two 2015 letters to the IRS about guidance relating to overpayments and earnings calculations from DB plans and expansion of SCP eligibility for plan loan failures.
|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.|