IRS releases updates to the EPCRS retirement plan correction program

In July 2021, the Internal Revenue Service (IRS) released updates to the Employee Plans Compliance Resolution System (EPCRS) correction program for retirement plans.

Summary: Changes to the IRS Plan Sponsor Error Correction Program

When plan sponsors don’t adhere to certain operational standards for their retirement plans, then the plan risks disqualification—resulting in extreme adverse tax consequences for both the employer and employees. However, through the EPCRS plan correction program, plan sponsors can fix plan errors without losing the plan’s tax benefits.

Significant Updates

In July 2021, the IRS updated the EPCRS by issuing Revenue Procedure 2021-30. The guidance, which is generally effective July 16, 2021, expands the correction program for plan sponsors—including key changes, such as:

  • Expanding guidance on overpayments
  • Increasing the de minimis amounts threshold
  • Eliminating the anonymous submission procedure under the Voluntary Correction Program (VCP)
  • Extending the Self-Correction Program (SCP) for significant operational failures
  • Expanding the ability to correct under SCP by plan amendment
  • Extending the sunset date for the Automatic Contribution Feature Safe Harbor

Correction options for failures involving overpayments have been expanded. In general, plan sponsors may now provide the option of repaying an overpayment in a single sum payment or through an installment agreement. Defined benefit (DB) plans can repay through an adjustment in future payments. In addition, DB plans have two new overpayment correction methods: 1) the funding exception correction method and 2) the contribution credit correction method.

De Minimis Amount Threshold
The threshold increased from $100 to $250 for certain de minimis amounts (e.g., small overpayments, small excess amounts).

Elimination of Anonymous VCP
Effective January 1, 2022, the IRS will no longer accept anonymous VCP submissions. Instead, the IRS added an anonymous VCP pre-submission conference procedure. There is no fee to request or participate in these conferences.

SCP Correction Period for Significant Failures
Previously, the deadline for self-correction of significant failures was the last day of the second plan year following the plan year for which the failure occurred. Now, the deadline is extended by one year—making it the last day of the third plan year following the plan year for which the failure occurred.

Self-Correction by Plan Amendment
Previously, self-correction by plan amendment required that any corrective amendment that increased a benefit, right or feature must apply to everyone eligible to participate under the plan. Now, the update no longer requires that all participants in the plan benefit by the retroactive amendment.

Sunset Date of “Automatic Contribution Feature Safe Harbor”
The safe harbor correction method available for certain failures associated with missed elective deferrals for eligible employees subject to an automatic contribution feature in a 401(k) or 403(b) plan was previously only available for failures beginning on or before 12/31/2020. This date is extended to 12/31/2023.

Questions? Contact your Fidelity representative.

For plan sponsor and investment professional use only.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

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