EPCRS: Ensuring Retirement Plan Compliance and Fixing Mistakes

If you are an employer offering a retirement plan to your employees, it is important to ensure that the plan is in compliance with federal tax laws and regulations.

However, mistakes can happen, and if they do, it is important to address them promptly. This is where the Employee Plans Compliance Resolution System (EPCRS) comes in.

EPCRS is a program offered by the Internal Revenue Service (IRS) that allows retirement plan sponsors to correct mistakes and ensure compliance with federal tax laws.

The program offers three different correction programs: the Self-Correction Program (SCP), the Voluntary Correction Program (VCP), and the Audit Closing Agreement Program (Audit CAP). Each program has its own requirements and benefits, and choosing the right one depends on the specific circumstances of the mistake and the plan.

By utilizing EPCRS, you can avoid the consequences of plan disqualification and protect your tax deductions.

Additionally, correcting mistakes promptly can help ensure that your employees receive the retirement benefits they are entitled to. In this article, we will provide an overview of EPCRS and its three correction programs, as well as tips for identifying and correcting common retirement plan mistakes.

Understanding EPCRS

If you make mistakes in your retirement plan, you may use the IRS Employee Plans Compliance Resolution System (EPCRS) to fix your mistakes and avoid the consequences of plan disqualification.

The correction for a mistake should be reasonable and appropriate. EPCRS offers three programs for correcting plan errors:

  • Self-Correction Program (SCP)
  • Voluntary Correction Program (VCP)
  • Audit Closing Agreement Program (Audit CAP)

The Self-Correction Program (SCP) allows the sponsor to address errors in the plan without contacting the IRS and without paying fees.

The SCP is available only if the plan sponsor corrects the error within a certain time frame and the correction is reasonable and appropriate.

The Voluntary Correction Program (VCP) is available if the plan sponsor cannot use the SCP or chooses not to use it.

The VCP requires the sponsor to pay a fee and submit an application to the IRS. The IRS will review the application and issue a compliance statement if the correction is reasonable and appropriate.

The Audit Closing Agreement Program (Audit CAP) is available if the plan sponsor is under audit and the audit reveals plan errors. The sponsor can use the Audit CAP to correct the errors and avoid disqualification of the plan.

EPCRS lets plan sponsors correct certain common plan failures to satisfy the plan qualification requirements without suffering the severe penalty of plan disqualification. It is important to understand the different programs and their requirements to ensure compliance with the IRS regulations.

Identifying Retirement Plan Mistakes

As a retirement plan sponsor, it is important to identify any mistakes made in your plan to ensure compliance with the Internal Revenue Code requirements. Here are some common mistakes to look out for:

Failure to Follow Plan Document Provisions

One of the most common mistakes made by retirement plan sponsors is failing to follow the plan document provisions. Plan sponsors must ensure that the plan is being operated in accordance with the terms of the plan document.

Failure to Follow Operational Requirements

Another common mistake is failing to follow the operational requirements of the plan. This includes failing to properly calculate contributions or failing to follow the plan's vesting schedule.

Failure to Timely Deposit Employee Contributions

Plan sponsors must also ensure that employee contributions are deposited in a timely manner. The Department of Labor requires that employee contributions be deposited as soon as they can be reasonably segregated from the employer's general assets, but no later than the 15th business day of the month following the month in which the contributions were withheld from the employee's paycheck.

Failure to Properly Administer Loans and Hardship Withdrawals

Plan sponsors must also ensure that loans and hardship withdrawals are properly administered. This includes ensuring that loans are properly documented and repaid on time, and that hardship withdrawals are only made for reasons allowed by the plan.

By identifying these common mistakes, you can take the necessary steps to correct them and ensure compliance with the Internal Revenue Code requirements. The Employee Plans Compliance Resolution System (EPCRS) offers various programs for correcting plan errors, including the Self-Correction Program (SCP), the Voluntary Correction Program (VCP), and the Audit Closing Agreement Program (Audit CAP).

Application of EPCRS

If you have discovered an error in your retirement plan, you may be able to use the IRS Employee Plans Compliance Resolution System (EPCRS) to correct the mistake and avoid potential consequences.

EPCRS offers three programs for correcting plan errors:

  • Self-Correction Program (SCP)
  • Voluntary Correction Program (VCP)
  • Audit Closing Agreement Program (Audit CAP)

The SCP allows you to correct certain plan failures without contacting the IRS or paying a fee. However, you must meet certain requirements, such as correcting the failure within a specified time frame and providing notice to affected participants.

The VCP allows you to voluntarily correct plan failures that do not qualify for the SCP. You must submit an application to the IRS and pay a fee based on the plan's assets. The IRS will review your application and provide a compliance statement if your correction is acceptable.

The Audit CAP is for plan failures discovered during an IRS audit. You may enter into a closing agreement with the IRS to correct the failure and avoid disqualification of the plan.

It's important to note that EPCRS does not provide relief for all plan failures. For example, failures that significantly impact the rights of participants or beneficiaries may not be eligible for correction under EPCRS.

Overall, using EPCRS can help ensure compliance with retirement plan rules and regulations, and potentially avoid costly consequences.

EPCRS Correction Programs

When it comes to correcting errors in your retirement plan, the IRS offers three correction programs under the Employee Plans Compliance Resolution System (EPCRS). These programs allow you to fix mistakes and keep your retirement benefits on a tax-favored basis.

Self-Correction Program

The Self-Correction Program (SCP) is the first option for correcting certain plan failures without contacting the IRS or paying a user fee. However, there are certain conditions that must be met to be eligible for this program.

To be eligible for SCP, the plan sponsor must correct the failure within a certain time frame, and the failure must be considered “insignificant.” Examples of insignificant failures include missed minimum distribution payments or plan loan failures.

Voluntary Correction Program

The Voluntary Correction Program (VCP) is the second option for correcting plan failures that are not eligible for SCP or to get IRS written agreement that specified failures were properly corrected.

To participate in VCP, the plan sponsor must submit an application, pay a user fee, and correct the failure according to the terms of the VCP. The VCP requires the plan sponsor to identify the failure and describe how it will be corrected.

Audit Closing Agreement Program

The Audit Closing Agreement Program (Audit CAP) is the third option for correcting plan failures that are discovered during an IRS audit. This program requires the plan sponsor to enter into a closing agreement with the IRS to correct the failure and pay any associated taxes and penalties.

The Audit CAP program is only available if the plan sponsor has not already corrected the failure through SCP or VCP. If the plan sponsor fails to correct the failure, the plan may be disqualified, and participants may lose their tax-favored status.

In summary, the EPCRS correction programs offer plan sponsors a way to correct mistakes and avoid the consequences of plan disqualification. Each program has its own eligibility requirements and procedures, so it is important to carefully review the options and choose the one that is right for your situation.

EPCRS Submission Process

If you have identified errors in your retirement plan, you can use the Employee Plans Compliance Resolution System (EPCRS) to correct them and ensure compliance with the Internal Revenue Service (IRS) regulations. Here's what you need to know about the EPCRS submission process:

Step 1: Identify the Error

The first step in the EPCRS submission process is identifying the error in your retirement plan. You can use the EPCRS to correct any operational, demographic, or plan document failures. It is essential to identify the error and understand its impact on your plan.

Step 2: Choose the Correction Program

Once you have identified the error, you need to choose the appropriate correction program. The EPCRS offers three correction programs:

  • Self-Correction Program (SCP)
  • Voluntary Correction Program (VCP)
  • Audit Closing Agreement Program (Audit CAP)

Each program has its own eligibility requirements, correction methods, and fees. You need to choose the program that best suits your situation.

Step 3: Prepare the Application

After choosing the correction program, you need to prepare the application. The application should include:

  • Detailed description of the error
  • Correction method
  • Impact on the plan participants
  • Supporting documentation

You should also include a calculation of any additional contributions, earnings, or distributions required to correct the error.

Step 4: Submit the Application

Once you have prepared the application, you need to submit it to the IRS. The submission process varies depending on the correction program you have chosen. The SCP does not require IRS approval, while the VCP and Audit CAP require IRS approval.

Step 5: Correct the Error

After the IRS approves your application, you need to implement the correction method. You should follow the correction method outlined in your application and document the correction process.

In conclusion, the EPCRS submission process is a crucial step in correcting errors in your retirement plan and ensuring compliance with the IRS regulations. By following the steps outlined above, you can choose the appropriate correction program, prepare the application, and correct the error in your retirement plan.

Impact of EPCRS on Plan Sponsors

As a plan sponsor, the Employee Plans Compliance Resolution System (EPCRS) can significantly impact your retirement plan. EPCRS provides a way for you to correct any mistakes made in your plan and avoid the consequences of plan disqualification. Here are a few ways that EPCRS can impact you as a plan sponsor:

Avoiding Plan Disqualification

One of the most significant impacts of EPCRS on plan sponsors is the ability to avoid plan disqualification. Disqualification can result in significant tax consequences for both the employer and employees. EPCRS allows plan sponsors to correct mistakes and maintain the plan's tax-qualified status, ensuring that employees can continue to enjoy the tax benefits of the plan.

Reduced IRS Fees

EPCRS also provides a way for plan sponsors to correct errors with no or minimal Internal Revenue Service (IRS) fees. The amount of the fee depends on the type of mistake and the correction method used. By utilizing EPCRS, plan sponsors can avoid costly fees and penalties that can result from non-compliance.

Expanded Correction Methods

The recent update to EPCRS has expanded plan sponsors' ability and methods to correct overpayments and to self-correct certain plan failures without filing a Voluntary Compliance Program (VCP). This update has made several important changes to EPCRS, allowing plan sponsors to leverage the relaxed rules for retroactive plan corrections.

Increased Flexibility

EPCRS provides plan sponsors with increased flexibility when it comes to correcting mistakes in their retirement plans. The correction for a mistake should be reasonable and appropriate, and EPCRS allows plan sponsors to choose the correction method that works best for their plan and their employees.

In summary, EPCRS can have a significant impact on plan sponsors, allowing them to correct mistakes, avoid plan disqualification, reduce IRS fees, and increase flexibility. As a plan sponsor, it is essential to understand the benefits of EPCRS and utilize it to ensure compliance with retirement plan regulations.

EPCRS Case Studies

To better understand how the Employee Plans Compliance Resolution System (EPCRS) works in practice, let's take a look at a few case studies.

Case Study 1: Late Deferral Deposits

In this case, the plan sponsor discovered that they had failed to deposit employee deferrals in a timely manner. The plan sponsor used the Voluntary Correction Program (VCP) to correct the mistake and avoid disqualification. They paid a sanction to the IRS, but it was significantly less than the potential penalties they could have faced.

Case Study 2: Incorrect Plan Document

In this case, the plan sponsor discovered that their plan document did not include a required provision. The plan sponsor used the VCP to correct the mistake and avoid disqualification. They paid a sanction to the IRS, but it was significantly less than the potential penalties they could have faced.

Case Study 3: Failure to Amend Plan

In this case, the plan sponsor failed to amend their plan in a timely manner. The plan sponsor used the VCP to correct the mistake and avoid disqualification. They paid a sanction to the IRS, but it was significantly less than the potential penalties they could have faced.

Case Study 4: Incorrect Plan Operation

In this case, the plan sponsor discovered that they had been operating their plan incorrectly for several years. The plan sponsor used the VCP to correct the mistake and avoid disqualification. They paid a sanction to the IRS, but it was significantly less than the potential penalties they could have faced.

Overall, these case studies demonstrate the importance of using the EPCRS to correct plan mistakes and ensure compliance. By using the appropriate program under the EPCRS, plan sponsors can avoid potentially significant penalties and keep their plans in compliance with the law.

EPCRS and Future Compliance

Now that you have corrected any mistakes in your retirement plan using the Employee Plans Compliance Resolution System (EPCRS), it's important to ensure future compliance. The EPCRS offers several programs to help you stay compliant, including the Self-Correction Program (SCP), Voluntary Correction Program (VCP), and Audit Closing Agreement Program (Audit CAP).

The SCP allows plan sponsors to correct certain plan failures without contacting the IRS or paying any fees. This program is only available if the failure is minor and can be corrected within a certain timeframe. The VCP, on the other hand, requires plan sponsors to contact the IRS and pay a fee to correct any failures that cannot be corrected through the SCP. The Audit CAP is used when the IRS discovers a failure during an audit, and the plan sponsor agrees to pay a sanction to correct the failure.

To ensure future compliance, it's important to regularly review your plan and correct any errors as soon as possible. The EPCRS offers a list of common plan errors that plan sponsors should be aware of, including:

  • Failure to follow the plan document
  • Failure to make timely contributions
  • Failure to satisfy the minimum coverage requirements
  • Failure to satisfy the minimum participation requirements
  • Failure to properly amend the plan document
  • Failure to properly distribute benefits

By staying aware of these common errors and correcting them promptly, you can avoid plan disqualification and ensure that your retirement plan remains in compliance with IRS regulations.

In addition to correcting errors, it's important to keep thorough records of all plan amendments, contributions, and distributions. This documentation will be necessary in the event of an audit or correction through the EPCRS. By maintaining accurate records, you can quickly and easily correct any errors and ensure future compliance with IRS regulations.

Overall, the EPCRS offers several programs to help plan sponsors correct errors and maintain compliance with IRS regulations. By staying aware of common plan errors, correcting errors promptly, and maintaining thorough records, you can ensure the long-term success of your retirement plan.

Conclusion

In conclusion, the Employee Plans Compliance Resolution System (EPCRS) is an essential tool for retirement plan sponsors to fix plan mistakes and ensure compliance with IRS regulations. With three different programs available, the Self-Correction Program (SCP), Voluntary Correction Program (VCP), and Audit Closing Agreement Program (Audit CAP), plan sponsors have options to correct errors and continue to provide retirement benefits on a tax-favored basis.

The correction for a mistake should be reasonable and appropriate to avoid the consequences of plan disqualification. By using the EPCRS, plan sponsors can avoid costly penalties and maintain the tax benefits of their retirement plans.

It is important for plan sponsors to regularly review their plans for common errors and take prompt action to fix them. The EPCRS provides resources to help identify and correct these mistakes, including a list of common plan errors and guidance on how to fix them.

Overall, the EPCRS offers a valuable solution for retirement plan sponsors to maintain compliance with IRS regulations and provide retirement benefits to their employees. By utilizing the EPCRS, plan sponsors can ensure the long-term success of their retirement plans and avoid costly penalties.

Frequently Asked Questions

What is the EPCRS forfeiture correction?

The EPCRS forfeiture correction is a way to correct mistakes in your retirement plan that involve forfeiture accounts. This correction method allows you to restore forfeited amounts to affected participants and accounts.

What is the safe harbor correction for EPCRS?

The safe harbor correction for EPCRS is a way to correct certain mistakes in your retirement plan without involving the IRS. This correction method requires you to follow specific steps outlined in the EPCRS guidelines to ensure compliance.

What is the IRS self-correction program?

The IRS self-correction program allows you to correct certain mistakes in your retirement plan without involving the IRS. This correction method requires you to follow specific steps outlined in the EPCRS guidelines to ensure compliance.

How do I use the IRS Fix-it Guide?

The IRS Fix-it Guide is a resource that provides guidance on how to correct common mistakes in your retirement plan. To use this guide, you must identify the mistake in your plan and follow the steps outlined in the guide to correct it.

What is the DOL Error Correction Program?

The DOL Error Correction Program is a program that allows you to correct certain mistakes in your retirement plan that are under the jurisdiction of the Department of Labor (DOL). This correction method requires you to follow specific steps outlined in the DOL guidelines to ensure compliance.

What is the EPCRS retroactive amendment process?

The EPCRS retroactive amendment process is a way to correct mistakes in your retirement plan that involve plan amendments. This correction method allows you to retroactively amend your plan to correct the mistake and ensure compliance with IRS regulations.