IRS updates its Employee Plans Compliance Resolution System (EPCRS)
The IRS adds important new correction methods in Rev. Proc. 2021-30.
TAX ALERT |
Authored by RSM US LLP
On July 16, 2021, the IRS issued Rev. Proc. 2021-30, superseding Rev. Proc. 2019-19, and revising the Employee Plans Compliance Resolution System (EPCRS) to add significant new correction methods for qualified plans. Rev. Proc. 2021-30 updates EPCRS corrections for 401(a), 403(a), 403(b), 408(k) or 408(p) plans.
In general, the EPCRS permits plan sponsors to correct plan qualification failures in operation and in form, and thereby allows qualified plans to provide retirement benefits on a tax-favored basis. EPCRS consists of the Self-Correction Program (SCP), the Voluntary Correction Program (VCP) and the Audit Closing Agreement Program (Audit CAP).
The newly released Rev. Proc. 2021-30 modifies and supersedes Rev. Proc. 2019-19 and provides the following modifications:
Two new overpayment corrections for defined benefit plans
Under prior rules, when participants or beneficiaries of a defined benefit plan received a payment greater than what they are entitled to under the terms of the plan, the employer had to request repayment and if the participant did not repay the excess payment, the employer had to reimburse the plan. Now effective, July 16, 2021, the IRS has added two new overpayment correction methods, (1) the funding exception correction method and the (2) contribution credit correction method. These methods reduce the need for defined benefit plans to seek recoupment from overpayment recipients and, when the employer seeks a refund of the overpayment, they ease the process for overpayment recipients to repay overpayments. From an employer’s perspective, if the plan is not an underfunded plan or the plan’s minimum required contribution for the year reflects the overpayment, there may not be a need to make a specific reimbursement payment to the plan.
Threshold amount for overpayments not requiring correction is increased from $100 to $250
The updated Revenue Procedure provides that, generally, if the total amount of an overpayment is $250 or less, the plan sponsor is not required to seek the return of the overpayment from the recipient, or to notify the recipient that the overpayment is not an eligible rollover distribution. The limit under the prior rule was $100.
Extension of self-correction period for significant failures is extended from two years to three years
The updated Revenue Procedure extends the end of the SCP correction period for ‘significant’ failures from the last day of the second plan year following the year in which the failure occurred to the last day of the third plan year following.
Elimination of the requirement that self-correction by plan amendment must affect ‘all eligible participants’
Previously, self-correction by plan amendment was permitted only if: (a) the plan amendment would result in an increase of a benefit, right or feature for all plan participants; and (b) the increase in the benefit, right or feature to participants is permitted under the Code and satisfied the Revenue Procedure’s correction principles. The new Revenue Procedure eliminates the prior condition that permitted self-correction by plan amendment only if a plan amendment increased a benefit, right or feature applied to all participants.
For example, if a plan erroneously included auto allowance amounts in calculating plan benefits, the employer could not correct the error by amending the definition of compensation to include auto allowances, because such an amendment would benefit only those participants who received an auto allowance, but would not benefit those participants who did not receive auto allowances. Under the new rule, such an amendment is potentially allowable, if the amendment meets the requirements described below.
Under the new Revenue Procedure, the expanded rule provides that self-correction by plan amendment is permitted only if: (a) the plan amendment would result in an increase of a benefit, right, or feature; and (b) the increase in the benefit, right or feature to participants is permitted under the Code and satisfied the Revenue Procedure’s correction principles. Nondiscrimination rules continue to apply to such corrections.
Elimination of anonymous submissions
Effective Jan. 1, 2022, the new Revenue Procedure eliminates the anonymous submission procedure under the VCP and adds an anonymous, no-fee, VCP pre-submission conference procedure.
Payment of Audit CAP sanctions required through Pay.gov
Effective Jan. 1, 2022, the new Revenue Procedure will require that Audit CAP sanctions must be paid through the Pay.gov website.
Extension of safe-harbor correction method for some missed elective deferrals
The updated Revenue Procedure extends by three years the popular safe harbor correction method available for some missed elective deferrals. Under the prior rule, these safe harbors sunsetted at the end of 2020. The new provision is retroactive to Jan. 1, 2021, and the new safe harbor has a sunset date of Dec. 23, 2023. Specifically, this refers to the special correction methods for automatic enrollment 401(k) and 403(b) plans, as well as certain missed deferrals in non-automatic enrollment plans. The IRS has designed these safe harbors to reduce the cost to employers to correct these failures.
Call us at (800) 624-2400 or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Joni Andrioff, Katie Beaver and originally appeared on 2021-07-19.
2021 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Weinlander Fitzhugh is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Weinlander Fitzhugh can assist you, please call (989) 893-5577.