Certified retirement plan correction program expanded and revised | Jackson Walker

The Internal Revenue Service updated and expanded the ability to correct plan operational and document errors with the new and improved Employee Plan Compliance System (Rev. Proc. 2021-30) (EPCRS). The EPCRS was published from July 16, 2021 and is generally applicable. It revises and expands in many ways the previous version of the same program, and continues its goal of encouraging voluntary corrections with limited fees while protecting employees and their retirement benefits.

This article highlights some of the key changes for employers who support qualified retirement plans.

Changed Voluntary Correction Program

While EPCRS no longer allows anonymous correction requests under the Voluntary Correction Program (VCP) after December 31, 2021 with effect from January 1, 2022, EPCRS instead allows an anonymous conference prior to VCP submission, at which a representative after completing certain Forms can conduct a conference with an IRS agent and receive non-binding comments from such an agent.

Permitted self-correction

EPCRS enables self-correction without filing significant operational errors within three years of the year in which these errors occurred, provided that the corrections otherwise comply with the current EPCRS guidelines for the Self-Correction Program (SCP). Previously, the correction was required within two years.

EPCRS now defines that the correction must essentially be corrected by the end of the self-correction period by making the correction contribution / adjustment to the plan accounts of 65% of the plan participants whose accounts were affected by the operational error to be corrected. This change clarifies the completion required to apply the SCP program. Certain errors in planning documents can also be corrected within the framework of the SCP, provided that the specified requirements are met.

Extending the SCP period to three years will also give companies that are acquiring other companies with operational problems under the Pension Plan a little more time to fix those errors and clarity on how much needs to be fixed by the SCP deadline so that the SCP can be used.

Overpayments handled

Overpayment of retirement benefits is a common problem. In addition to resolving overpayments from defined contribution plans, EPCRS now provides a correction mechanism for overpayments from defined benefit plans that takes into account the economic or funded status of the plan and the impact of erroneous overpayments.

A consistent requirement of a defined benefit pension plan is that the benefit payment of the plan must be adjusted to the correct amount. There are alternatives that can be presented to the participant, spouse, or beneficiary receiving the payments. Furthermore, depending on the funding status of the pension plan in question, holders of defined benefit pension plans may have correction options.

When correcting pension distributions in the form of an annuity, plan promoters must consider spouse’s rights and the impact on qualifying co- and survivor rights, as discussed in EPCRS.

Increased small “surpluses”

Another helpful change was that the IRS increased the small “surpluses” that did not require adjustment from $ 100 to $ 250. This avoids a plan having to pay out a surplus if it is less than $ 250. This does not apply to contributions in excess of the annual dollar limit for employee contributions to reduce salaries or other statutory contribution limits. Care must be taken to ensure that the amount qualifies as an “excess amount” under EPCRS before the Plan determines that no distribution is required.

EPCRS is now 140 pages long so this is a very high level summary of selected items.

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