The IRS has issued updated guidance pertaining to its Employee Plans Compliance Resolution System (EPCRS) (the three-pronged self-correction program administered by the IRS that allows for self-correction (without an IRS application), voluntary correction (with an IRS application) and negotiated correction/sanctions under Audit-CAP). This updated guidance comes in the form of Revenue Procedure 2018-52, which modifies and replaces Revenue Procedure 2016-51(the current IRS publication that outlines the EPCRS program).
Those working with retirement plans are likely aware that perfect compliance with legal requirements is difficult, and failures with respect to the documentation, operation and demographics (generally meaning enough non-highly compensation employees are benefitting) are common. The EPCRS permits plan sponsors of certain retirement plans to correct failures to meet specific requirements of the Internal Revenue Code (the “Code”) and continue offering the plan as a qualified plan on a tax-favored basis. The newly released procedures make several updates to these correction methods.
The most notable change is that the IRS is moving the Voluntary Corrections Program (VCP) to an online-only platform. Effective April 1, 2019, plan sponsors must file their VCP submissions electronically using the www.pay.gov website. While plan sponsors may begin filing VCP submissions online as of January 1, 2019, during a transition period through March 31, 2019, the IRS will also continue accepting paper VCP submissions. However, the IRS will no longer accept paper submissions postmarked on or after April 1, 2019.
To file VCP submissions online, plan sponsors will have to establish an account on pay.gov, which will be used when filing and paying applicable user fees. The new procedures include specific instructions for paying user fees using the pay.gov website and how to designate an authorized representative to file a VCP submission with the IRS using the pay.gov website. After the VCP submission is filed and the user fee is paid, the IRS will no longer mail acknowledgment letters to applicants; instead, receipt of a submission will be acknowledged with a unique tracking ID.
Other changes include updated procedures to reflect recent changes in to the pre-approved plan program for qualified plans and the pre-approved 403(b) plan program (making this program more broadly available now). The IRS also inserted a reminder as to the fact that the IRS Letter Forwarding Program is no longer used as a means to search for participants and beneficiaries. Many other technical changes and clarifications have been made.
As a reminder, whenever it is determined that your retirement plan has not complied with its terms and/or its terms or operation have not complied with governing law (generally ERISA and the Code), it is best practice to seek assistance from benefit plan counsel and advisors on appropriate corrections to avoid costly penalties if/when the error is identified on audit.