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Correcting Errors in Employee Plans

The IRS has made it easier to correct errors in employee plans. The IRS issued Rev. Proc. 2021-30, which updates the IRS Employee Plans Compliance Resolution System (EPCRS). The Rev. Proc. is applicable to all errors that caused the plan to be non-compliant with the requirements of Code Sections 401(a), 403(a), 403(b), 408(k) and 408(p). Accordingly, the Rev. Proc. now enables employee plan sponsors to correct plan document failures, failures in the operation of the plan, demographic failures and employer eligibility failures.  

Depending on the type of plan failure, the 140-page Rev. Proc. provides guidance for the Self-Correction Program, the Voluntary Correction Program or the Audit Closing Agreement Program.

The changes made by the Rev. Proc. were generally effective July 16, 2021, and include:

  • Generally, plan sponsors do not have to require repayments from plan participants that received overpayments and, generally, the plan sponsors do not have to reimburse the plan for these overpayments.
  • The correction period for correction of errors under the “self-correction” category has been extended from two to three years.
  • It facilitates the correction of operational failures by eliminating the requirement that all participants in the plan benefit by the retroactive amendment.
  • It raises the threshold amount for when a sponsor is required to correct an error from $100 to $250.
  • Beginning Jan. 1, 2022, plan sponsors can request an anonymous, no-cost conference with the IRS to discuss their intent to do a voluntary correction.

Updated IRS Correction Principles and Changes to VCP Outlined in EPCRS Revenue Procedure 2021-30 | Internal Revenue Service

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