The IRS’s Employee Plans Compliance Resolution System (“EPCRS”) is a program that allows sponsors of certain retirement plans to correct common plan failures to satisfy the Internal Revenue Code qualification requirements without suffering the severe penalty of plan disqualification. The IRS issued two new Revenue Procedures (“Rev. Procs.”) in 2015 providing additional guidance under EPCRS.
Qualified plans must comply with the Code’s requirements both in form and in operation. Any failure to meet these obligations can lead to plan disqualification, the severe effects of which can include:
- Income taxation of the plan’s trust for all open years.
- The employer’s loss or postponement of deductions for contributions made to the plan during open tax years.
- For plan participants, immediate income taxation of vested contributions made on their behalf, or vested accrued benefits, as well as loss of their right to roll over distributions tax-free to IRAs or other plans.
EPCRS is one way to avoid these consequences.
Examples of Frequent Mistakes
- Not updating the plan document to reflect recent law changes
- Not basing plan operations on the terms of the plan document
- Not using the correct definition of compensation for deferrals and allocations
- Not making matching contributions available to all appropriate employees
- Failing the 401(k) ADP and ACP nondiscrimination tests
- Not timely depositing employee elective deferrals
- Failing to ensure that participant loans conform to the requirements of the plan document and Code section 72(p)
The two Revenue Procedures facilitate the correction of additional retirement plan defects. Rev. Proc. 2015-28 permits additional relief for correcting elective deferral failures under automatic contribution features and early correction of elective deferral failures. Rev. Proc. 2015-27 permits additional methods of correcting retirement plan overpayments and reduced compliance fees for minimum required distribution and loan failures.
Plan sponsors are encouraged to utilize the EPCRS procedures. For further guidance, please contact Eric Gregory in our Troy, Mich. office at 248-433-7669.