IRS Updates Correction Procedures for Tax-Qualified Retirement Plans
On December 31, 2012, the Internal Revenue Service ("IRS") issued Revenue Procedure 2013-12, which updates procedures under the Employee Plans Compliance Resolution System ("EPCRS") for correction of certain documentary and operational failures of tax-qualified retirement plans. These updated procedures apply to correction submissions made to the IRS on or after April 1, 2013.
EPCRS provides correction programs for retirement plans that are intended to satisfy the requirements of section 401(a), 403(a), 403(b), 408(k), or 408(p) of the Internal Revenue Code (the "Code"), but that have failed to meet these requirements for a period of time. EPCRS permits Plan Sponsors to correct these failures and thereby maintain the tax-qualified status of their plans through one of three programs: the Self-Correction Program ("SCP"), the Voluntary Correction Program ("VCP"), or the Audit Closing Agreement Program ("Audit CAP").
The most significant changes to the EPCRS correction procedures implemented by Revenue Procedure 2013-12 relate to VCP submission procedures and Code section 403(b) plans:
Modifications to VCP submission procedures. Under the updated EPCRS, all VCP submissions must now include a completed Form 8950 (Application for Voluntary Correction Program Under the Employee Plans Compliance Resolution System) and Form 8951 (Compliance Fee for Application for Voluntary Correction Program Submission Under the Employee Plans Compliance Resolution System). Form 8950 includes a procedural requirements checklist. The current drafts of the Forms may be found on the IRS website at: http://www.irs.gov/pub/irs-dft/f8950--dft.pdf and http://www.irs.gov/pub/irs-dft/f8951--dft.pdf.
Modifications related to Code section 403(b) Plans. Revenue Procedure 2013-12 provides that the VCP is available for Code section 403(b) plans to correct plan document and operational failures. In effect, employers sponsoring 403(b) plans can now correct document and operational failures with the blessing of the IRS.
In this regard, sponsors that failed to comply with the final Code section 403(b) regulations by timely adopting a written 403(b) plan document are encouraged to use the VCP this year to correct that failure - especially because the fee will be halved for any such VCP submission made by December 31, 2013.
In addition to the changes made to update the VCP submission process and cover Code section 403(b) plan failures, Revenue Procedure 2013-12 makes a number of other modifications to the prior EPCRS correction procedures set forth in Revenue Procedure 2008-50. Many of these changes include clarifications and updates necessary to reflect amendments to applicable law and regulations that have occurred since Revenue Procedure 2008-50 was issued. For example, Revenue Procedure 2013-12 clarifies when a determination letter application is required under EPCRS and updates procedures to address established practices to promote compliance with Code section 415(c). A complete list of modifications is set forth in Section 2.04 of Revenue Procedure 2013-12.
Most likely, the EPCRS correction procedures will continue to be updated. For example, Revenue Procedure 2013-12 does not include correction methods for failures to implement automatic enrollment, automatic escalation, and safe harbor notices. The IRS has requested comments on these and other specific issues. (See Section 2.05 of Revenue Procedure 2013-12.)
