The Employee Plans Compliance Resolution System (EPCRS) is an Internal Revenue Service (IRS) portal that allows plan sponsors and administrators to correct errors in their retirement plan. The EPCRS allows these entities to choose one of three methods to bring their plan back into compliance with IRS regulations. The goal of the system is to encourage sponsors to correct errors quickly by minimizing fees when they take remediation steps proactively.
- The Employee Plans Compliance Resolution System (EPCRS) allows plan sponsors and administrators to correct errors with no or minimal Internal Revenue Service (IRS) fees.
- The system offers three options for amending errors; some mistakes can be fixed using a self-correction option that requires no notification to the IRS.
- The U.S. Senate is deliberating on the U.S. House-passed SECURE 2.0 bill, which would broaden the scope of the EPCRS.
What Is the Employee Plans Compliance Resolution System (EPCRS)?
Employer-sponsored retirement plans such as 401(k) and 403(b) plans—as well as Savings Incentive Match Plan for Employees (SIMPLE) individual retirement accounts (IRAs) and Simplified Employee Pension (SEP) IRAs for small businesses—are subject to a complex array of federal regulations. Employers that sponsor retirement plans, as well as the administrators who manage them, must be in compliance with the regulations to continue providing these popular tax-favored investment vehicles.
According to The National Law Review, errors can involve plan operations, the plan document, policies that discriminate in favor of more highly paid employees, or an ineligible employer adopting a plan. There also may be situations in which contributions to an employee’s SEP IRA were miscalculated or different employees received contributions equal to a different percentage of their salaries.
The EPCRS is designed to help sponsors correct mistakes more quickly and cost-effectively. In some cases, sponsors and administrators can take the necessary remediation steps themselves, which means that they don’t need to notify the IRS of the mistake or pay fees. In other situations, some involvement from the IRS is required.
The EPCRS offers three ways to correct mistakes involving a retirement plan.
1. Self-Correction Program (SCP)
The Self-Correction Program (SCP) allows the sponsor to address errors in the plan without contacting the IRS and without paying fees. The SCP is available only for certain types of errors, including:
- Operational problems, including a failure to comply with the terms of a sponsor’s plan
- Issues with the plan document, including the dissemination of outdated information
- Mistakes with participant loans, including excessive loans in default or cases where a plan participant obtained more loans than they should have been allowed under the plan’s written terms
2. Voluntary Correction Program (VCP)
The Voluntary Correction Program (VCP) is an option for errors in a retirement plan that don’t qualify for self-correction. Sponsors and administrators can also avail themselves of the VCP if they seek assurance from the IRS that their remediation efforts will, in fact, fix the mistake.
Under the VCP, the sponsor must submit a report to the IRS that identifies the errors and the corrective actions it intends to make. These are included on a completed IRS Form 8950, which is titled “Application for Voluntary Correction Program (VCP) Under the Employee Plans Compliance Resolution System (EPCRS).” The sponsor also needs to makes changes to its administrative procedures to ensure that the errors do not recur, as well as pay an applicable fee using the U.S. Department of the Treasury website Pay.gov.
Once the filing is accepted and reviewed, the IRS issues a Compliance Statement listing the errors identified by the sponsor and the correction methods it has approved. The sponsor then has 150 days to address the issues according to its filing. While this process is under way, the IRS will typically not initiate an audit of the plan.
3. Audit Closing Agreement Program (Audit CAP)
The Audit Closing Agreement Program (Audit CAP) allows plan sponsors to correct errors identified during the course of an IRS audit. Under the Audit CAP, the sponsor makes certain corrective actions and subsequently enters into a Closing Agreement with the IRS. The sponsor must pay a sanction that it has negotiated with the IRS, which is typically based on the “nature, extent, and severity” of the plan errors.
In July 2021, the IRS issued Revenue Procedure 2021-30, which made several revisions to the EPCRS. These changes include:
- Additional guidance on how overpayments can be recouped
- The replacement of the anonymous submission option for VCP with an anonymous pre-submission procedure
- An extension of the SCP correction period for “significant failures” by one year
- An increase in the plan sponsors’ ability to correct an operational failure through a plan amendment using SCP
- An extension of the sunset for safe harbor correction methods available to address missed elective deferrals subject to an automatic contribution
SECURE 2.0 Bill
On March 29, 2022, the U.S. House of Representatives passed the Securing a Strong Retirement Act of 2022, otherwise known as SECURE 2.0. The overwhelming bipartisan vote was 414 to 5. The bill includes a number of provisions aimed at increasing access to tax-advantaged retirement plans and boosting savings. It also includes an expansion of the EPCRS.
The bill has since been sent to the U.S. Senate, where it awaits a vote. According to the actuarial consulting firm Buck Global LLC, if passed, the bill would:
- Extend the time in which plan sponsors can make corrections
- Introduce more safe harbors for unintentional plan errors
- Allow sponsors to self-correct errors related to plan loans
- Lessen the excise tax imposed when a plan participant fails to take a required minimum distribution (RMD)
- Eliminate the need to recover inadvertent overpayments to retirees
What is the Employee Plans Compliance Resolution System (EPCRS)?
The EPCRS allows employers to correct errors in their retirement plan so that they can remain in compliance with Internal Revenue Service (IRS) regulations. Doing so helps ensure that the plan sponsor can continue to offer this tax-advantaged benefit.
Which resolution options are available through the EPCRS?
Plan sponsors may choose one of three resolution options offered by the EPCRS. The first is the Self-Correction Program (SCP), which is only available for certain errors, charges no fees, and does not require that the IRS be notified of the failure. In situations where the SCP is not an option, the Voluntary Correction Program (VCP) allows sponsors to pay a fee and obtain IRS approval for corrective actions. Finally, the Audit Closing Agreement Program (Audit CAP) lets employers correct an error while the plan is under audit and pay a sanction.
How would SECURE 2.0 affect EPCRS?
The U.S. House overwhelmingly passed the Securing a Strong Retirement Act of 2022, otherwise known as SECURE 2.0, in March 2022. If it is passed by the U.S. Senate and signed by President Biden, the bill would make several changes to the EPCRS, including:
- Lengthening the period during which plan sponsors can make corrections
- Providing additional safe harbors for accidental plan errors
- Granting sponsors the opportunity to fix errors regarding plan loans by themselves
- Reducing the excise tax charged when a plan participant doesn’t take a required minimum distribution (RMD)
- Ending the reclamation of mistaken overpayments to retirees
The Bottom Line
The Employee Plans Compliance Resolution System (EPCRS) gives retirement plan sponsors and administrators three routes for correcting errors in retirement plans. One route, the Self-Correction Program (SCP), can be employed to fix certain problems without even notifying the IRS. If the SECURE 2.0 bill passes Congress, the EPCRS will be further modified.