The IRS has released revisions to the Employee Plans Compliance Resolution System (EPCRS) in Revenue Procedure 2019-19. The revisions are effective as of April 19, 2019.
EPCRS constitutes three separate programs that are used to correct problems in the operations or documents of qualified retirement plans and certain other retirement arrangements (such as SEPs). The program generally treats sponsors more favorably who come forward voluntarily to correct their problems, and the system is meant to encourage sponsors to voluntarily fix the plan as opposed to “hoping” the issue will never be noticed.
The components of EPCRS are:
Self-Correction Program (SCP) – for items eligible for correction under this program, the plan sponsor takes the specified corrective action without payment of any fee and without a sanction.
Voluntary Correction Program (VCP) – For corrections eligible for this program, the sponsor pays a “limited fee” and receives the IRS’s approval for correction of certain failures.
Correction on Audit (Audit CAP) – Failures identified on audit may be eligible for correction via Audit CAP. Under Audit CAP the sponsor corrects the failure and pays a sanction.
The new IRS procedure modifies and supersedes Revenue Procedure 2018-52. The IRS summarizes the purpose of this update as follows:
This update to Rev. Proc. 2018-52 is a limited update and is published primarily to expand SCP eligibility to permit correction of certain Plan Document Failures and certain plan loan failures, and also to provide an additional method of correcting Operational Failures by plan amendment under SCP.
Note that most (but not all) programs covered by EPCRS are also subject to the jurisdiction of the Department of Labor who may also impose penalties and sanctions. The DOL’s program for corrections is the Voluntary Fiduciary Correction Program (VFC Program). Correction under EPCRS does not necessarily mean the correction will also satisfy the DOL unless DOL has specifically indicated that it will accept the correction. Plan sponsors may need to also take actions under the VFC program to fully eliminate the potential sanctions that could be imposed.
For instance, the new Revenue Procedure notes that the IRS will now allow sponsors to correct some plan loan failures under SCP, as well as correction methods previously available under VCP and Audit CAP. However, Section 2.02(4) of Revenue Procedure 2019-19 notes that the Department of Labor will only grant a no-action letter for such issues under that agency’s VFC Program if the taxpayer submits a VCP letter. The Revenue Procedure goes on to note “[t]he Department of Labor has advised the IRS that it will not issue a no-action letter … unless such failures are corrected under VCP.”