Taking Advantage of the Updated EPCRS | Practical Law

Taking Advantage of the Updated EPCRS | Practical Law

The IRS released Revenue Procedure 2013-12, the new Employee Plans Compliance Resolution System (EPCRS), on December 31, 2012. The procedure updates the comprehensive system of correction programs for sponsors of qualified retirement plans.

Taking Advantage of the Updated EPCRS

Practical Law Legal Update 6-524-0501 (Approx. 5 pages)

Taking Advantage of the Updated EPCRS

by PLC Employee Benefits & Executive Compensation
Published on 12 Feb 2013 • USA (National/Federal)
The IRS released Revenue Procedure 2013-12, the new Employee Plans Compliance Resolution System (EPCRS), on December 31, 2012. The procedure updates the comprehensive system of correction programs for sponsors of qualified retirement plans.
Sponsors of qualified retirement plans and their legal counsel should be aware that the IRS recently released a comprehensive update to the Employee Plans Compliance Resolution System (EPCRS). EPCRS is a correction programs system established by the Internal Revenue Service (IRS) to correct qualification errors in retirement plans that could otherwise jeopardize the tax-qualified status of the plan. EPCRS, which was updated on December 31, 2012 in Revenue Procedure 2013-12, 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. The IRS made multiple changes to the existing EPCRS that plan sponsors can take advantage of now, including:
  • New, streamlined procedures (and schedules) for submitting Voluntary Compliance Program (VCP) applications.
  • Guidance on how to correct defined benefit plan failures under IRC Section 436.
  • Revised and additional methods for correcting the improper exclusion of employees.
PLC's Practice Note, Correcting Qualified Plan Errors under EPCRS, co-authored with Andy Wang and Jennifer Kobayashi of Wang Kobayashi Austin, LLC, provides a comprehensive guide to EPCRS, including all of the changes from Revenue Procedure 2013-12. While selected portions from this Practice Note follow, see the full Practice Note for more helpful guidance.

Voluntary Compliance Program (VCP)

VCP allows a plan sponsor to correct any qualification failure by voluntarily seeking IRS approval and paying a limited compliance fee. VCP also provides general procedures for the correction of participant loans that did not comply with the requirements of IRC Section 72(p)(2) (see Practice Note, Correcting Qualified Plan Errors under EPCRS: Voluntary Correction with Service Approval Program: VCP).

Updated VCP Submission Procedures

Generally under VCP, the plan sponsor must submit an application to the IRS. The submission procedures for VCP applications changed substantially under Revenue Procedure 2013-12. Under the updated EPCRS, all VCP submissions made on or after April 1, 2013 must include a completed Form 8950 (incorporating VCP application information) and Form 8951 (with VCP compliance fee information). However, plan sponsors submitting VCP applications anytime on or after December 31, 2012 may use these new forms and the new submission procedures under EPCRS.
Much of the information requested for VCP submissions under the old EPCRS is now incorporated into Form 8950. For more information, see Practice Note, Correcting Qualified Plan Errors under EPCRS: Submission Requirements for VCP.

Reduced VCP Compliance Fees

The VCP compliance fee is generally based on the number of participants in the plan (see Practice Note, Correcting Qualified Plan Errors under EPCRS: Compliance Fee). The updated VCP procedures include changes to these fees and reduced compliance fees in certain situations, including:
  • Electronic fund transfers. The IRS may convert compliance checks into electronic fund transfers by using the account information on the check rather than processing the actual check. Plan sponsors should ensure that sufficient amounts exist in the account before sending the compliance check.
  • Temporarily reduced fees for 403(b) plans. The VCP compliance fee for a failure to adopt a IRC Section 403(b) plan is temporarily reduced by 50% if:
  • $500 compliance fee for nonamenders. The VCP compliance fee is $500 if the sole failure is the failure to adopt a required amendment within the remedial amendment period, provided that the amendment is adopted within three months of the end of that remedial amendment period.
  • Fees for multiple failures. If multiple failures are included in one VCP submission and each failure is subject to a reduced fee, the plan sponsor is required to pay the lesser of the sum of the reduced fees or the fee provided under EPCRS Section 12.02(1) (which did not change from the last EPCRS).
  • Reduced fees for nonamender failures discovered during the determination letter process. EPCRS provides reduced sanctions and otherwise updates the fee schedule for nonamender failures discovered during the determination letter application process (that are unrelated to failures submitted through VCP).
For more information, see Practice Note, Correcting Qualified Plan Errors under EPCRS: Reduced Compliance Fees for Certain Submissions.

IRC Section 436 Corrections

EPCRS adds correction procedures for operational failures under IRC Section 436(b), (c) or (e) which generally require the plan sponsor to make a contribution to the plan equal to the amount required under IRC Section 436(b)(2), (c)(2) or (e)(2) (as applicable). The procedure also provides that corrective distributions from a plan subject to a benefit restriction under IRC Section 436 are not subject to the requirements of IRC Section 436 at the time of the correction. However, if that corrective distribution is made in the form of a prohibited payment under IRC Section 436 (such as a single-sum payment), the plan sponsor must make an additional corrective contribution to the plan in the amount of that corrective distribution.
For more information, see Practice Note, Correcting Qualified Plan Errors under EPCRS: Corrective Allocations.

Corrective Contributions for Missed Deferral Opportunities

The updated EPCRS now provides that a plan sponsor may correct a failure to make a matching contribution to a participant due to the participant's improper exclusion from a non-safe harbor 401(k) plan by making a contribution to the plan equal to the matching contribution the participant would have received based on the participant's missed deferral. This corrective contribution can be in the form of an employer non-elective contribution (which is subject to the vesting schedule for matching contributions) rather than in the form of a qualified non-elective contribution (QNEC) (which are fully vested). QNECs must still be made to the plan to correct the participant's "missed deferral opportunity" to make elective deferrals to the plan.)
For more information, see Practice Note, Correcting Qualified Plan Errors under EPCRS: Missed Deferral Opportunity Corrections. This Practice Note also contains a detailed example of this type of correction (see Box: SCP Example: Exclusion of Eligible Employee from 401(k) Plan).
For additional information on EPCRS and all of these changes, review the full Practice Note and Correcting Plan Errors under EPCRS Checklist.