Fun Fact: Did you know that two, possibly three, government agencies oversee employer-sponsored retirement plans? Furthermore, multiple committees in both houses of congress get involved when drafting bills and legislation that impact retirement plans.
Retirement plans are both a tax benefit and employee benefit, which means that the rule book continues to be written and re-written. This creates even further complications. Don’t get me wrong, I love the intricacies and how we can make these plans work wonders for businesses. However, when our friend Complexity comes over, his buddy Error occasionally crashes the party.
Fortunately, the IRS gives us a great way to handle party crashers and correct the plans that we hold dear.
ANOTHER acronym: what IS the EPCRS and why is it a good thing for employers?
To encourage plan corrections and provide guidance for how to fix common errors, the IRS created the Employee Plans Compliance Resolution System (EPCRS). This system allows some plan errors to be self-corrected by employers.
By going this route, employers can avoid formally notifying the IRS of an error, skip hefty fees, and keep their qualified status (which provides numerous tax benefits, etc.). This means less tedious paperwork and more money saved!
What types of self-corrections does the EPCRS allow?
The EPCRS allows plan sponsors to correct a few different types of plan errors through self-correction:
- Participant loan failures – An example of this type of failure would be when a participant fails to make loan payments and it goes into default. To correct, participants can make up for missed payments and continue their loan. Or, they can re-amortize the outstanding principle and accrued interest over the remaining term.
- Plan document failure – These errors occur when plan sponsors do not update their plan in accordance with required deadlines for legislative changes.
- Plan operational errors – This type of error encompasses all mistakes that come from administering the plan outside of the rules set by the plan document. For example, if the plan document states that an employee is eligible to join the plan after three months of service, but they aren’t actually allowed to enter the plan for a year, this would be an operational error.
Key changes to EPCRS
Here are a few of the important changes the IRS made to the EPCRS program as of July 2021:
- The time period allowed for plan sponsors to correct operational failures was extended by a year. It used used to be two years, but is now three.
- Anonymous corrections are no longer allowed, but a conference call with the IRS can be requested in advance of submitting.
- The IRS eased retroactive amendment guidance. Now, the IRS allows retroactive amendments if they increase a benefit, right, or feature in the plan. This is permitted even if the benefit does not apply to all participants in the plan.
- Overpayments no longer must be solved with repayments by the participant. In some cases, these do not require the plan sponsor to reimburse the plan either.
Why does this matter?
Self-correction rules have eased and become more available for plan sponsors. However, increased audits and regulation enforcement is also trending with the IRS and DOL. Therefore, there is an increased risk of a plan examination and costly penalties for business owners if they leave plan errors uncorrected.
How much SELF in self-correction?
What does “self-correction” really mean? Do we expect employers to know retirement plan regulations inside and out, recognize that an error has occurred, and know the appropriate steps to take to correct them? ABSOLUTELY NOT.
At EGPS, we do not expect any business owner to be a retirement plan expert; that’s our expertise. And we’re here and ready to help! If made aware of a plan failure, business owners can engage EGPS to review the situation and provide recommendations for correction.
Fill out the form below if you’re interested in having EGPS review a plan error and provide recommendations.