Employee Plans Compliance Resolution System (EPCRS)

• What is the Employee Plan Compliance Resolution System (EPCRS)?
• Does EPCRS apply to corrections of ERISA compliance issues?
• Should a plan sponsor document the error and the corrective action taken under the Self-Correction Program (SCP)?
• If it is necessary to use the Voluntary Correction Program (VCP) to correct a qualification failure, should the plan sponsor engage counsel to assist with the VCP process?
• A plan sponsor has found an error affecting their retirement plan. What should the plan sponsor do next?

What is the Employee Plan Compliance Resolution System (EPCRS)?

The Internal Revenue Service maintains the Employee Plans Compliance Resolution System (EPCRS) to provide plan sponsors with the opportunity and ability to self-correct most instances of noncompliance in a specified way. The prescribed corrective action will most often place affected participants in the position they would have been in had the error not occurred. The EPCRS supports three foundational programs:

1. Self-Correction Program (SCP): The SCP is used to correct insignificant operational problems at any time. For qualified plans with favorable determination letters and 403(b) plans, even significant operational problems generally may also be corrected within two years of the problem year. The SCP requires no application, and no fee is required to use it. Relief under the SCP is available for operational failures such as failing to follow your plan's terms, certain plan document problems, and participant loan issues.
2. Voluntary Correction Program (VCP): The VCP is used to correct Qualification Failures (i.e., any failure to comply with Code section 401(a) or 403(a)/(b)) prior to the plan being selected for an IRS examination. The IRS requires an extensive application that identifies the error or errors, offers a proposed correction for the error as well as administrative changes to ensure the error does not happen again. Following a response and approval of the correction method from the IRS the plan sponsor must make the corrections within 150 days. Plan sponsors must pay a fee determined per instance with reference to variables such as the number of participants, the type of error being corrected, the type of plan that is being corrected, etc. The IRS's VCP fee can be as little as $375 or as much as $25,000.
3. Audit Closing Agreement Program (Audit CAP): The Audit CAP is used in conjunction with an IRS examination. The corrective action prescribed will depend on the error(s) discovered during the examination. The corrections are made prior to closing the audit, and a sanction negotiated with the IRS must be paid. The sanction is based on the extent and severity of the plan failures.

The IRS provides extensive information on the types of failures that qualify for the different correction procedures at https://www.irs.gov/retirement-plans/epcrs-overview. This site provides links to information on correction procedures for specific plan types (i.e., 401(k), 403(b), SEP, etc.).

Does EPCRS apply to corrections of ERISA compliance issues?

No. The IRS enforces the provisions of the Internal Revenue Code, whereas the Department of Labor (DOL) enforces the provisions of ERISA. Error correction related to ERISA's provisions is accomplished through the Voluntary Fiduciary Correction Program or the Delinquent Filers Voluntary Compliance Program, depending upon the issue. A plan sponsor should note that correcting plan errors using EPCRS will satisfy the IRS, but it may not satisfy the DOL.

Should a plan sponsor document the error and the corrective action taken under the Self-Correction Program (SCP)?

Plan sponsors may be reluctant to document errors, even when they are properly corrected under the SCP. However, documentation of the error and the manner of correction demonstrates a plan sponsor's ability to spot and correct an error under the plan and is likely to come in handy for the annual independent plan audit, if required, and any IRS examination activity.

If it is necessary to use the Voluntary Correction Program (VCP) to correct a qualification failure, should the plan sponsor engage counsel to assist with the VCP process?

Most often, a plan sponsor in need of the VCP will engage the assistance of counsel to help navigate the complex procedures and requirements of the VCP. While Multnomah Group strongly recommends the engagement of counsel for this purpose, it is not legally required that a plan sponsor consult with an attorney regarding the VCP submission.

A plan sponsor has found an error affecting their retirement plan. What should the plan sponsor do next?

There is an appropriate corrective solution for every problem that could face a plan sponsor. Ideally, errors are discovered and corrected quickly after they occur such that the liability clock stops ticking as soon as possible. The worst thing a plan sponsor can do when they find an error is nothing.