On August 25th, 2021, the Internal Revenue Service (IRS) released updated guidance for employers on correcting benefit plan mistakes. In general, Revenue Procedure 2021-30 updates the Employee Plans Compliance Resolution System (EPCRS). Chiefly, if an administrator makes a mistake in a retirement plan, the EPCRS can fix the error, avoiding plan disqualification. Earlier, in July 2021, the IRS released information on multiemployer pension plan financial assistance with the Pension Benefit Guaranty Corporation.
Correcting Benefit Plan Mistakes
At the present time, there are three ways to correct mistakes under EPCRS:
- Self-Correction Program (SCP) permits a plan sponsor to correct certain failures without contacting the IRS or paying a fee.
- Voluntary Correction Program (VCP) permits a sponsor to pay a fee and receive IRS approval for plan failure corrections. However, a VCP must occur before an audit.
- Audit Closing Agreement Program (Audit CAP) permits sponsors to pay sanctions and correct plan failures while under audit.
Updates to the Employee Plans Compliance Resolution System
Accordingly, the August release of Revenue Procedure 2021-30 includes the following updates for correcting benefit plan mistakes:
- Firstly, the IRS added one year to the time period allowed to make corrections through the SCP. So, the new deadline is the last day of the third plan year (instead of the second plan year). Explicitly, the third plan year is the third year after the plan year when the failure occurred.
- Secondly, effective January 1st, 2022, the IRS will eliminate the current “anonymous submission procedure.” However, on that date, the agency can make anonymous VCP pre-submission conferences available to discuss correction methods.
- Thirdly, the EPCRS requires the complete correction of operational errors except for certain “de minimis” amounts. Previously, on July 16th, 2021, the de minimis threshold increased from $100 to $250. Subsequently, plan administrators do not need to recoup any incorrect contributions of $250 or less from a participant’s account.
- Lastly, plan sponsors can now provide overpayment recipients with different repayment options. In detail, those options include: 1) in a single sum payment, 2) through installments, or 3) through future payment adjustments.