Posted on Jul 23, 2021
Retirement plan sponsors and those who work to correct plan failures need to know that as of July 16, 2021, the IRS has extended the self-correction period of significant operational failures from two to three years. Rev. Proc. 2021-30 also has a series of updates that include two new benefit overpayment correction methods.
The IRS Employee Plans Compliance Resolution System (EPCRS) offers three options for plan sponsors to correct retirement plan failures:
- Self-Correction Program (SCP) – Correct certain plan failures without contacting the IRS or paying a user fee.
- Voluntary Correction Program (VCP) – Correct failures not eligible for SCP and to get the approval of the IRS that the failures were properly corrected
- Audit CAP - Resolve failures discovered during an IRS audit that can’t be corrected using SCP
The new changes and revisions are significant. They give plan sponsors more flexibility and may be beneficial for plan participants. For example, the revised overpayments correction options make it easier for plan sponsors to fix operational failures when participants receive payments from defined benefit plans that exceed what is permitted by the plan’s terms. The new principles reduce the need for plan sponsors to demand repayment and allow flexibility for recipients to make repayments, including installments or reduction of future payments rather than a single lump sum. Under certain circumstances, the plan sponsor is not required to reimburse the plan for overpayments.
In addition, the IRS has removed the requirement that all participants benefit from retroactive amendments, which makes it easier for plan sponsors to use retroactive plan amendments to correct operational failures. The new rules also eliminate anonymous submission under the Voluntary Correction Program (VCP) as of January 1, 2022. Instead, the IRS may allow anonymous pre-submission conferences starting January 1, 2022, which permits plan sponsors to make an anonymous request at no cost. However, if the plan sponsor submits a VCP request after the pre-submission conference, it is no longer anonymous.
Other changes of note include the following:
- The IRS has extended the sunset of the safe harbor for certain missed elective deferrals by three years
- Plan sponsors are not required to implement correction for minor overpayment amounts. The threshold has been changed from $100 to $250.
The Treasury Department and the IRS invite comments from the public on this revenue procedure. Comments should be submitted in writing by October 14, 2021, and should include a reference to Revenue Procedure 2021-30. It’s best to submit comments electronically via Regulations.gov. In the search bar, type IRS Revenue Procedure 2021-30 to find these regulations and submit comments.
This material is provided for informational purposes only, and is not intended as authoritative guidance, legal advice, or assurance of compliance with state and federal regulations.Back to Blogs Helpful Resource Links