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IRS Revenue Procedure 2015-27 Modifies EPCRS
Practical Law Legal Update 1-606-5933 (Approx. 5 pages)
IRS Revenue Procedure 2015-27 Modifies EPCRS
by Practical Law Employee Benefits & Executive Compensation
| Published on 30 Mar 2015 • USA (National/Federal) |
The Internal Revenue Service (IRS) issued Revenue Procedure 2015-27 modifying the Employee Plans Compliance Resolution System (EPCRS). This guidance clarifies the corrections available for overpayment failures and makes other helpful modifications for plan sponsors.
On March 27, 2015, the Internal Revenue Service (IRS) issued Revenue Procedure 2015-27 modifying the Employee Plans Compliance Resolution System (EPCRS). The guidance modifies and clarifies, but does not supersede, Revenue Procedure 2013-12, which was issued December 31, 2012 (see Legal Update, IRS Releases New Employee Plans Compliance Resolution System (EPCRS)).
Specifically, Revenue Procedure 2015-27:
- Clarifies the available correction methods for overpayment failures.
- Makes modifications to miscellaneous provisions of Revenue Procedure 2013-12.
The modifications are effective July 1, 2015. However, plan sponsors may apply these provisions beginning on March 27, 2015.
Background on EPCRS
Qualified retirement plans provide several tax advantages to both the plan sponsor and plan participants. However, to enjoy these tax advantages, plan sponsors must comply with plan document and operational compliance requirements set out in the Internal Revenue Code (Code) and accompanying regulations. The complexity of these compliance requirements leads to frequent errors which, if left uncorrected, can jeopardize the tax-qualified status of a retirement plan. As a result, the IRS created EPCRS to help plan sponsors correct errors.
EPCRS encourages voluntary compliance by allowing self-correction in certain situations and by providing plan sponsors an opportunity to voluntarily seek IRS approval of corrections at reduced costs and fees. For more information, see:
Overpayment Failures
Under Revenue Procedure 2013-12, employers are required to take reasonable steps to recoup overpayments back to the plan. In Revenue Procedure 2015-27, the IRS clarifies that, depending on the circumstances, plans are not always required to demand recoupment of large overpayments from participants and beneficiaries. It explains that plans have flexibility when correcting an overpayment and provides examples of appropriate alternative corrections, including:
- Having the employer or another person contribute the amount of the overpayment (plus interest) to the plan.
- Adopting a retroactive amendment conforming the plan document to the plan's operations.
Comments Requested
The IRS stated that it intends to make further revisions to the correction of overpayments, and is seeking comments on whether:
- Correction should require employer make-whole contributions instead of seeking recoupment from participants and beneficiaries.
- The correction method should be similar to the Pension Benefit Guaranty Corporation's (PBGC's) rule on recoupment of overpayments (29 C.F.R. § 4022.82).
- Additional guidance on the calculation of interest is needed.
- Any other changes or additional guidance is needed, including guidance on unusual circumstances where full repayment should not be required.
Comments must be submitted by July 20, 2015.
Other Modifications
Revenue Procedure 2015-27 makes several other modifications to the EPCRS, including:
- Extending the period that a plan sponsor can correct excess annual additions and remain eligible for the Self-Correction Program (SCP) to nine and a half months (see Practice Note, Correcting Qualified Plan Errors under EPCRS: Self-Correction Program (SCP)).
- Clarifying when a determination letter application is required to be submitted when a plan amendment is used to correct a qualification failure.
- Revising the Voluntary Correction Program (VCP) rules in certain situations to:
- extend the correction period for adopting certain amendments when a determination letter application is required to be submitted with a VCP submission;
- provide new submission form requirements;
- expand the availability of the reduced compliance fee for failures to satisfy the minimum distribution requirements; and
- modify the method for determining compliance fees relating to participant loans that do not satisfy Code Section 72(p) requirements (26 U.S.C. § 72(p)).
For more information on the VCP, see Practice Note, Correcting Qualified Plan Errors under EPCRS: Voluntary Correction with Service Approval Program: VCP.
Practical Implications
Plan sponsors seeking to correct under EPCRS should be aware of these revisions to EPCRS and should consider whether it is prudent to implement one of the new approved corrections for an overpayment failure. Plan sponsors that frequently encounter issues with overpayments should consider submitting comments to the IRS by the deadline, July 20, 2015.