The Internal Revenue Service (IRS) recently released Revenue Procedure 2019-19, Expanded Self Correction Program (Rev. Proc. 2019-19). As a brief history of the Employer Compliance Plans Resolution System (EPCRS):
The program began in 1990 with the introduction of the Audit Closing Agreement Program (Audit CAP), which reached an agreement on a sanction imposed when certain Plan-related issues were discovered by the IRS during the audit of a Plan. Audit CAP was made permanent in 1991.
In 1991, the Administrative Policy Regarding Sanctions (APRS) was introduced to resolve insignificant operational defects discovered during a Plan audit. No sanctions were imposed on these insignificant defects, however the acceptable list of defects was rather narrow.
The Voluntary Compliance Resolution (VCR) was established in 1992, and made permanent in 1994. Under the VCR, Plan Sponsors were able to disclose operational failures identified and corrected during the normal course of the Plan’s operation, and for a Fee, received IRS approval for the recommended correction, and confirmation that the defect would not adversely affect the Plan if discovered under audit.
In 1994, Walk-In CAP was introduced for the handling of defects not covered under the VCR. The Plan Sponsor brought the defect (such as a Document failure) to the attention of the IRS, and as with the Audit CAP, the sanction was agreed upon between the IRS and Plan Sponsor.
The Tax Sheltered Annuity Correction Program (TVC) was established in 1995 for Sponsors of a §403(b) Plan. Sponsors now had the same opportunity to resolve operational failures, and to pursue negotiated sanctions similar to Walk-In CAP and Audit CAP.
In 1996, the Administrative Policy Regarding Self-Correction (APRSC) was established to replace the APRS. The APRSC expanded the criteria for eligibility and correction.
In 1998, Revenue Procedure 98-22 consolidated the various correction programs (other than the TVC) and introduced the Employer Plans Compliance Resolution System (EPCRS). The TVC program was added to the EPCRS in 1999.
Numerous Revenue Procedures have since expanded, provided sample correction methods, and combined the two “CAP” into the EPCRS.
Rev. Proc. 2019-19 further expands self-correction opportunities for certain Plan Document failures (which formerly needed to be corrected using the VCR or CAP), addresses Plan Loans to participants, and expanded opportunities for correcting operational failures through Plan Amendment.
Plan Document failures:
Applies only to §401(a) and §403(b) Plans.
Plan Document failures are considered “significant” and must be corrected within the required two-year correction period.
The Plan must have a favorable letter.
The Self-Correction Program is not available to correct the untimely adoption of an initial §401(a) or §403(b) Plan.
The Self-Correction Program is not available to correct the untimely adoption of Amendments required to resolve demographic failures, such as untimely Amendment for §410(b) Coverage failures.
Loan failures:
Provides a correction for a Loan that does not meet the §72(p)(2) exceptions.
Defines steps for correcting Defaulted Loans.
Allows the correction for failure to obtain spousal consent for a Loan.
Allows for an Amendment when the number of Loans exceeds the limit permitted by the Plan.
Correction of Operational Failures through retroactive Plan Amendments, if the following conditions apply:
If the corrective Amendment increases a participant’s benefit, right or feature.
If the increase in benefit, right or feature is provided to all Eligible Plan Participants.
If the increase in benefit, right or feature is allowable under the General Non-Discrimination, Coverage, Anti-Cutback, or Universal Availability requirements of IRC §§401(a), 410(b), 411(d)(6) or 403(b)(12).
Since it’s inception 30-years ago, the IRS correction opportunities have been expanded substantially, especially with regard to self-correction opportunities. The IRS will continue to expand the allowable corrections as additional operational defects are discovered under Plan audit, and from feedback from industry spokespersons.