Plan sponsors are permitted to correct certain operational and other failures of their qualified plans through the IRS using their Employee Plans Compliance Resolution System (EPCRS). This program allows sponsors to preserve their tax-favored status when failures arise.

EPCRS has three components: Self Correction Program (SCP), Voluntary Correction Program (VCP) and Audit Closing Agreement Program (Audit CAP).

The Self Correction Program (SCP) permits sponsors to correct certain plan failures without being required to contact the IRS or pay a fee. There are certain failures that may be corrected through SCP. SCP will only be available if the plan document is up to date for all required amendments and the sponsor/administrator has procedures for administering the Plan in place. The most common use for SCP is operational failures, which is a failure to follow the terms of your written plan. Examples include eligibility errors, contribution failures and/or loan failures. SCP is not allowed for Plan document issues, specifically failure to amend the document timely for law changes. There are time limits on correcting these failures, though they vary by failure type.

The Voluntary Correction Program (VCP) is used for more significant failures, including Plan document failures. With this program, a submission must be made to the IRS detailing the failure and the proposed correction the plan sponsor will be taking, as well as processes and procedures to ensure the error will not recur. There are specific forms and processes for this correction program. Previously this correction process was completed solely through paper filings and forms, but effective April 1, 2019, plan sponsors must use the www.pay.gov website when filing a VCP submission and paying applicable user fees. It is best to contact an ERISA attorney if sponsors intend to use the VCP for corrections.

These two correction programs can be used only if the plan is not under audit by the IRS or DOL. If, during an audit of the Plan an error is found by an IRS or DOL auditor, the plan must use the Audit CAP to correct the failures. This program is formalized with the IRS and Plan Sponsor during the audit. The sponsor must show the correction of the error has been made prior to entering the Closing Agreement. The sponsor and IRS will negotiate a sanction that will not be excessive and will be reasonable based on the extent, nature and severity of the failures. The sanction that is determined in the Audit CAP program will not be less than the fees paid under VCP.

For more detailed information on these three programs, you can visit the IRS website. If you have questions about these correction programs, please feel free to reach out to MCM Employee Benefits Manager Becky Barnett, QPA, QKA via e-mail or phone (502.882.4320).