Anonymous Correction Guidance Still Available Under EPCRS
Maintaining a retirement plan requires knowledge of the law and diligence in application by plan administrators, but even the most prudent administrator can make a mistake. Plan sponsors can often correct mistakes made by following the guidelines in Revenue Procedure 2021-30, otherwise known as the Employee Plans Compliance Resolution System (“EPCRS”). EPCRS provides a comprehensive system of correction programs for sponsors of retirement plans that are intended to satisfy the requirements of the Internal Revenue Code. Common administrative mistakes include improperly excluding employees from making elective deferrals, using the wrong definition of compensation, and plan loan errors. Although EPCRS provides correction procedures for many plan errors, plan sponsors may find themselves in situations that cannot be resolved by the steps described in the Revenue Procedure or where they want to propose a correction different from what is outlined in EPCRS.
Prior to the most recent version of EPCRS, the IRS permitted us to submit an anonymous VCP application on behalf of our clients to propose an alternative method to correct plan errors not described in EPCRS without identifying the client. This procedure was a useful tool when a plan failure was not contemplated by EPCRS or if the correction procedures outlined in EPCRS would be too costly to administer so an alternative was being proposed. We would submit the plan sponsor’s proposed correction to the IRS with the applicable VCP user fee, and the IRS could review and offer feedback on the correction without us revealing the plan sponsor’s identity. If the IRS approved the correction, the plan sponsor then had a period of time to come forward at which point they would have reliance on the IRS’s compliance statement.
The most recent version of EPCRS did away with anonymous submissions under VCP effective January 1, 2022.
The new EPCRS procedures have replaced the anonymous submission under VCP with a Pre-Submission Conference. The plan sponsor’s representative can submit a VCP Pre-submission Conference request with the IRS. Unlike the anonymous VCP submission, there is no fee for a Pre-Submission Conference. The request should include (1) a written explanation of the qualification failure, including how and why it occurred, the number of people impacted, and the periods of time it occurred, (2) a detailed narrative that contains a prosed solution of the failure and why the correction is consistent with the correction principles of EPCRS, (3) a written explanation of the method used to compute earnings, if applicable, (4) a copy of any relevant plan provisions or amendments, and (5) any other information the IRS would need to evaluate the request. Pre-Submission Conferences are held only at the discretion of the IRS. If the request is accepted, the IRS will provide oral feedback regarding the failure and proposed correction method described in the request.
Although a useful tool for obtaining guidance, the conference is advisory only, is not binding on the IRS, and cannot be relied upon as a basis for obtaining relief under EPCRS. After the conference, the IRS will provide a written confirmation that the conference took place, and the plan sponsor can reference the unique identifying number the IRS has assigned to the conference if a VCP submission is subsequently filed. The agent reviewing the VCP submission may be different from the agent in the Pre-Submission Conference, but will have access to the work product from the conference.
Our experience with the new Pre-Submission Conference has been positive so far, both in obtaining a conference and receiving helpful feedback. It is not as helpful as receiving a positive compliance statement though under the old EPCRS anonymous submission. EPCRS does still provide for the traditional VCP filing where the plan sponsor is revealed from the start.
If you need help with a correction or want to discuss the new EPCRS procedures further, please contact any of our Employee Benefits attorneys.