| On December 31,
2012, IRS issued its update to the Employee
Plans Compliance Resolution System, or “EPCRS” (Rev.
Proc. 2013-12), effective April 1, 2013. EPCRS is the IRS’ comprehensive
system of correction programs that are available
to sponsors of qualified retirement plans
that have suffered one or more qualification
abbreviated checklist for 401(k) plans was
formulated by the IRS at "www.irs.gov/pub/irs-pdf/p4531.pdf"
.Failure to follow the terms of the plan
document can potentially lead to plan
disqualification upon IRS audit. The above
checklist, and the EPRS program, can assist
plan sponsors in avoiding such errors and
correcting them timely and effectively, if
and when they occur.
Otherwise, the potential consequences of
plan disqualification can be severe.
Under the EPCRS program, there are three
(3) protocols to correct mistakes in plan
administration: 1). Self Correction (SCP),
2). Voluntary Correction Program (VCP), and
3). Audit Closing Agreement Program (Audit
Self-Correction Program: Allows a plan
sponsor to correct certain insignificant,
and some significant, plan failures without
contacting the IRS, or paying a fee.
Correction Program: Provides the plan
sponsor with a protocol for correcting plan
errors, before becoming under audit,
as long as the sponsor pays the requisite
user fee, and receives IRS approval for
correction of the plan failure(s) disclosed.
Agreement Program: An alternative to
possible plan disqualification, or other
penalty, provided the plan sponsor pays a
certain error specific monetary sanction,
and corrects the plan failure, while the
plan is under audit.
A general description of each of these
three (3) EPCRS program is noted below:
Self-Correction Program ("SCP")
To be eligible for SCP, the plan sponsor
must have established practices and
procedures reasonably designed to foster
overall compliance with the plan's
provisions, the applicable statutes, and
underlying regulations. If needed, the plan
sponsor should make changes to its
administrative procedures to ensure that the
mistakes do not recur. SCP is
available for correcting operational plan
errors only, not failures to amend and/or
restate the documents timely.
The plan sponsor should follow the general
correction principles in IRS Revenue
Procedure 2013-12, section 6.
The plan sponsor may correct "insignificant"
errors at any time before audit, and
"significant" errors (also before audit)
generally within 2 years of the plan defect.
The criteria for distinguishing
"insignificant" from "significant" errors
are primarily facts and circumstances such
as: the amount and/or percentage of plan
assets involved, the number of plan years in
which the error(s) occurred, the number of
affected plan participants, the timeliness
of the correction, and the reason for the
Correction Program ("VCP")
To be eligible for VCP, the plan sponsor
must complete and submit Form 8950,
Form 8951, identify the mistake(s), and the
proposed correction(s) under the general
correction principles in Rev Proc 2013-12,
In addition, the plan sponsor should make
the necessary changes to its administrative
procedures to ensure that such errors do not
The plan sponsor, must in addition to
correcting the plan error, must pay a
compliance fee to the IRS.
The plan sponsor should make the indicated
corrections to the listed errors within 150
days of the issuance of the IRS Compliance
During the processing of the VCP, the plan
sponsor will not audit the plan, except
under unusual circumstances.
Closing Agreement Program ("Audit CAP")
To be eligible for Audit CAP, the plan
sponsor will usually be under audit.
The IRS will propose a corrective sanction
that is a negotiated percentage of the
maximum payment amount, "(MPA'). This MPA is
the approximation of the consequences of a
potential plan disqualification based on all
open taxable years.
The plan sponsor, if it agrees to the terms
of the compliance statement, will pay the
sanction fee. Please note, this sanction fee
will generally be greater than the
compliance fee under the VCP program.
EPCRS procedure, while still long and quite
detailed, continues the significant
simplifications offered in its predecessors. This latest EPCRS release essentially
constitutes a sensible and coherent procedural
manual for practitioners and plan
sponsors to follow, while expanding it to
SARSEPs, and 403(b) plans.
Important Provisions. The new EPCRS
includes several characteristics worth
A single fee schedule, for all voluntary
submissions, simplifies the application
process. The fee schedule is based strictly
upon the number of plan participants. The graded
schedule starts at $750 for a plan of up
to twenty participants; other scheduled fees
are $1,000 for up to 50; $2,500 for up to
100; $5,000 for up to 500; $8,000 for up
to 1,000. Larger plans would pay more: $15,000
for up to 5,000 participants; $20,000 for
up to 10,000, and a cap at $25,000 after
If a non-amender
files for correction within the first year
after the plan’s remedial amendment
period has expired, the fee would be one-half
of the scheduled amount.
Group submission procedures have been streamlined,
so that TPA firms and other service providers
can correct numerous plans in a single submission.
Preparation of submission has been made
simpler by reducing the amount of paperwork
required in the packages. Also, the new
release continues the practice of including
sample formats for practitioners to use in
making EPCRS submissions.
The new EPCRS is not without many notable
changes. These changes included: employer
corrective contributions for improperly
excluded employees in a 401(k)/defined
contribution plan, corrective distributions
from a pension plan, and locating missing
participants in either a defined
contribution or defined benefit plan(s). For
a complete list of all significant changes
to this EPCRS program, please consult "www.irs.gov/pub/irs-tege/rp13_12_changes_chart.pdf"
The EPCRS standards for self-correction
are continued, where an IRS submission is not required.
Similarly, the explanations of the acceptable
corrective techniques (to determine the amounts
of corrective contributions and earnings
for operational failures) remain the same
for the most part. Again, the thrust of this
latest release is the new simplicity
in the filing of voluntary submissions, and Rev.
Proc. 2013-12 will serve as a useful operations
manual for such submissions.
More User-Friendly. IRS has gone to
great length to simplify EPCRS and construct
a straightforward, comprehensive,
instruction manual for the correction of
plan qualification failures.