IRS Employee Plan Compliance Resolution System (EPCRS)
If you make mistakes in your retirement plan, you can use the EPCRS to fix the mistakes and avoid the consequences of your plan being disqualified.
There are three ways to correct mistakes under EPCRS:
Self-Correction Program
The SCP allows plan sponsors to correct a mistake without contacting the IRS or paying a fee. If the operational error is insignificant, it can be corrected at any time. If the error is deemed significant, it needs to be corrected before the end of the second plan year following when the failure occurred.
Voluntary Correction Program
The VCP allows plan sponsors to pay a fee and receive IRS approval for correction of a failure. This method can be used any time before a plan is audited by the IRS. It requires a report detailing the error and proposed correction. Once approved by the IRS, the plan sponsor must maintain all records related to the correction.
Audit Closing Agreement Program
The Audit CAP requires a plan sponsor to pay a fine and correct plan failures identified during an IRS audit. The fine cannot be less than the plan sponsor would have paid under the VCP method.
The 2021 Plan Sponsor's Desk Reference is full of information relevant to HR, accounting, and finance professionals responsible for administering these plans. Download here.
Schreiber Accounting and Advisory offers plan audit services for 401(k) and 403(b) plans, as well as other types of employee benefit plans. Contact the firm for more information.
Material discussed is for informational purposes only. It is not to be interpreted as investment, tax, or legal advice. Individual situations vary, and this information should only be relied upon when coordinated with individual professional advice.