IRS Revises EPCRS Correction Program

The IRS recently released Rev. Proc. 2021-30, which modifies the Employee Plans Compliance Resolution System (EPCRS). Rev. Proc. 2021-30 supersedes the prior version of EPCRS under Rev. Proc. 2019-19, and generally became effective on July 16, 2021.

EPCRS permits sponsors of retirement plans to correct operational and plan document failures that may impact a plan’s tax qualified status. The EPCRS Self-Correction Program (SCP) allows for correction of insignificant errors or significant errors within specific timeframes without an IRS filing or fee payment.

Significant errors not eligible for SCP can generally be corrected by submitting a Voluntary Correction Program (VCP) application that describes the error and proposed correction, along with the applicable fee payment. The program provides specific safe harbor correction methods for common failures.

Rev. Proc. 2021-30 reflects several important changes to EPCRS, including an extension of the SCP correction period for significant failures by one year (from two to three years following the year in which the failure occurred). Accordingly, plan sponsors have extra time to identify and self-correct certain errors (such as employee elective deferral failures) and thus avoid the VCP process and related fee.

The updated guidance also reinstates the safe harbor correction method for automatic contribution arrangement failures through December 31, 2023. (The prior relief expired on December 31, 2020.)

Additionally, Rev. Proc. 2021-30 expands the ability of a plan sponsor to correct operational failures under SCP via retroactive plan amendment. Under certain conditions, a plan sponsor can now adopt an amendment that increases a plan benefit, right or feature even if the increase applies only to a subgroup of participants (as opposed to all eligible participants, which was previously required).

Notably, the new guidance replaces the prior VCP anonymous submission procedure with an anonymous, no-fee, VCP pre-submission conference procedure. This change is effective January 1, 2022. The conference, which is held at the discretion of the IRS, is designed to allow a representative of a plan sponsor to discuss a proposed correction for a complex failure with the IRS before submitting a VCP application and identifying the plan sponsor. The IRS will provide oral commentary on the error and proposed correction, but the advice will not be binding.

Rev. Proc. 2021-30 also expands the prior guidance regarding recoupment of plan overpayments in several ways. Under the updated procedures, the de minimis threshold for requiring repayment is increased from $100 to $250. If repayment is necessary, participants can be given the option of repayment through a lump sum, installments or by reducing future benefits. Furthermore, for defined benefit plans, no repayment or corrective contribution may be necessary, depending upon the plan’s funding level.

Sponsors of retirement plans should be aware of the updated EPCRS procedures. Comments regarding Rev. Proc 2021-30 can be submitted to the IRS no later than October 14, 2021.

Rev. Proc. 2021-30 »