IRS Updates Qualified Plan Correction Program
By Joseph Adams, Paul M. Hamburger, Brett R. Johnson and Stephen
R. Miller
McDermott Will & Emery LLP, Washington, DC, Chicago, IL, Boston, MA
The latest version of a popular IRS program provides expanded
correction opportunities and additional streamlined procedures.
On August 14, 2008, the IRS issued Rev. Proc. 2008-50 updating the
Employee Plans Compliance Resolution System (EPCRS), the comprehensive
system of correction programs for sponsors of qualified retirement
plans. The components of EPCRS are the Self-Correction Program (SCP),
the Voluntary Correction Program (VCP) and the Audit Closing Agreement
Program (Audit CAP).
The new EPCRS program supersedes the 2006 version of the program
and makes the following key changes:
Expanded access to SCP. The new EPCRS program clarifies when
correction by plan amendment is allowed under self-correction for
§401(a)(17) failures, hardship distribution failures, plan loan
failures, and failures related to early inclusion of otherwise
eligible employees. Also, the IRS expanded the timeframe within which
a plan sponsor can be treated as having substantially completed
self-correction, thereby precluding the IRS from identifying the error
for an audit issue.
Excluded employees and errors in deferral elections.The new
program provides clear sample correction methods for inadvertently
excluding employees or failing to correctly process participants'
deferral elections. The new EPCRS also modifies the corrections used
to address failures to include an eligible employee in a 401(k) plan,
including corrections for catch-up, after-tax and designated Roth
contributions.
Plan loan relief. The new EPCRS program expands the
availability of VCP for plan loan violations. In addition, the
compliance fee is reduced for filings related to certain plan loan
violations.
Relief from excise/additional taxes.The new EPCRS provides
relief from the 10% additional income tax on early distributions and
various otherwise applicable excise taxes.
Correction of §415 failures. The new EPCRS includes
specific rules on correcting §415 annual addition errors for
defined contribution plans.
Calculation of earnings.The new program clarifies when
earnings for corrections may be computed using the Department of
Labor's VFCP Online Calculator.
Sample VCP application forms and expanded streamlined VCP
application procedures. VCP's streamlined procedures have been
significantly expanded from three correction categories to nine
categories and a standardized application form is provided. A sample
application form for all other VCP applications is provided.
Rev. Proc. 2008-50 is effective January 1, 2009. However, plan
sponsors are permitted to apply the provisions of the revenue
procedure on or after September 2, 2008.
For more information, in the Tax Management Portfolios, see
Ireland, 360 T.M., Qualified Plans--IRS Determination Letter
Procedures, and in Tax Practice Series, see ¶5540, Obtaining
IRS Approval.
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