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Correcting Qualified Plan Errors Toolkit
Practical Law Toolkit w-006-7737 (Approx. 6 pages)
Correcting Qualified Plan Errors Toolkit
by Practical Law Employee Benefits & Executive Compensation
| Maintained • USA (National/Federal) |
Resources to assist companies and practitioners with correcting errors in tax-qualified retirement plans governed by the Internal Revenue Code of 1986 (Code) and the Employee Retirement Income Security Act of 1974 (ERISA), including resources addressing the IRS Employee Plans Compliance Resolution System (EPCRS) and the DOL Voluntary Fiduciary Correction Program (VFCP).
Qualified retirement plans provide several tax advantages to both the plan sponsor and plan participants:
- Participants in an Internal Revenue Code of 1986 (Code) Section 401(k) plan can elect to defer their compensation on a pre-tax basis.
- Employer contributions to a qualified retirement plan on behalf of participants are not immediately included in participants' income.
- The plan sponsor gets an immediate tax deduction for employer contributions to a qualified retirement plan.
- Earnings on contributions to a qualified retirement plan grow tax-free.
To enjoy these tax advantages, however, plan sponsors must comply with plan document and operational legal requirements set out in the Code. The complexity of these compliance requirements leads, not surprisingly, to frequent errors. If left uncorrected, errors can jeopardize the plan's tax-qualified status. The IRS created the Employee Plans Compliance Resolution System (EPCRS) to help plan sponsors correct qualification failures. As part of the SECURE 2.0 Act, Congress expanded the types of errors that can be corrected through the EPCRS, including through self-correction (see Legal Update, SECURE 2.0 Act Makes Comprehensive Changes to Retirement Plans).
It is also common for plan sponsors to inadvertently violate the complex requirements of the Employee Retirement Income Security Act of 1974 (ERISA) that apply to their retirement plans. The penalties for violating ERISA can be significant, particularly as they relate to breaches of fiduciary duty (see Practice Note, ERISA Litigation: Causes of Action and Remedies Under ERISA Section 502 for Benefit and Fiduciary Breach Claims: Claims for Breach of Fiduciary Duty (ERISA Section 502(a)(2))). The Department of Labor (DOL) established the Voluntary Fiduciary Correction Program (VFCP) in 2002 to allow fiduciaries of employee benefit plans to correct breaches of their fiduciary duty under ERISA without facing civil liability.
This Toolkit is a collection of resources to assist companies and practitioners with correcting errors in tax-qualified retirement plans, including several resources that address the correction of errors under EPCRS and VFCP.