IRS Provides Guidance on EPCRS Expansion Under SECURE 2.0 Act

The SECURE 2.0 Act made significant changes to the Employee Plans Compliance Resolution System (EPCRS) self-correction program but also granted the IRS broad latitude to limit self-correction as it deems appropriate.

The IRS has now provided interim guidance pursuant to these provisions in Notice 2023-43, which provides that plan sponsors may self-correct an “eligible inadvertent failure,” defined as a failure that occurs despite the existence of practices and procedures that satisfy standards set forth in section 4.04 of Rev. Proc. 2021-30, so long as certain conditions are met, including:

1. The failure is not identified by the IRS prior to any actions demonstrating a specific commitment to implement a self-correction.
2. The self-correction is made within a reasonable time after the failure is identified.
3. The failure is not egregious, does not relate to the diversion or misuse of plan assets, and is not directly or indirectly related to an abusive tax avoidance transaction.
4. The correction satisfies all provisions applicable to self-correction in the current version of EPCRS.

Self-correction is also available for certain eligible inadvertent failures related to plan loans but not for failures to initially adopt a written plan, significant failures in terminated plans, and corrections of operational failures by a plan amendment that results in less favorable treatment for a participant than the original terms of the plan.

Notice 2023-43 also suspends the existing EPCRS requirement that a plan be the subject of a favorable determination letter as well as its prohibition against self-correcting demographic failures and employer eligibility failures.

Because Notice 2023-43 is IRS guidance, it does not address areas over which the DOL has authority, such as the recovery of plan overpayments and the correction of automatic contribution errors.

Plan sponsors may apply a good faith, reasonable interpretation of the SECURE 2.0 Act changes for any self-correction completed in the interim period between the passage of the Act on December 29, 2022, and the publication of Notice 2023-43.

Plan sponsors may also rely on Notice 2023-43 until such time as subsequent EPCRS guidance is published. In the meantime, IRS has requested comments on this guidance and any other aspect of section 305 of the SECURE 2.0 Act, with particular emphasis on additional correction methods to be used to correct eligible inadvertent failures, including general principles of correction if a specific correction method is not otherwise specified in the rules or other guidance.

Comments are due by August 23, 2023, and may be submitted electronically at the regulations.gov website.