New options for operational corrections provided under EPCRS
Published July 19, 2019
To the relief of Plan Sponsors, effective April 19, 2019, Plan Sponsors now have new options for making operational corrections through the IRS’s self-correction program under the Employee Plans Compliance Resolution System (“EPCRS”).
Previously, Plan Sponsors were generally not allowed to make self-corrections to plan documents with amendments to correct operational failures. With this new guidance, the IRS will allow self-correction if:
- the amendment would increase a benefit, right or feature for participants
- the increase is available to all eligible employees; and
- the increase is permissible under the Internal Revenue Code and is consistent with EPCRS correction principles.
Defaulted loans – When participants default on their loans from their quailed retirement plan they can face costly personal tax consequences. Previously, Plan Sponsors were limited in the options they could offer participants after the loan defaulted. Now, participants can self-correct with either a lump sum payment or re-amortizing the loan without having to submit an application to the IRS.
Failure to obtain spousal consent – In the event that a loan is issued without spousal consent, the spousal consent can be obtained by notifying the spouse once the error is discovered.
Operational failures – Plans with issued loans in excess of the number of loans allowed by the plan or where a plan did not allow loans, can now be corrected with an amendment to the Plan. The amendment must satisfy IRS nondiscrimination requirements of the Internal Revenue Code.
Plan Sponsors will find these changes to the IRS self-correction program a welcome change that will make it easier to correction errors in the operations of employee benefit plans. As with any corrections, it is important to keep documentation on the error and the steps taken to correct the error.
For more information on the EPCRS, see Understanding the Employee Plans Compliance Resolutions System. Feel free to contact your MCM professional or MCM Senior Assurance Manager Michelle Deans, CPA via e-mail or phone (859.514.7772).