• IRS Updates Employee Plans Correction Program
  • February 18, 2013 | Authors: Fred R. Green; Irwin A. Kishner
  • Law Firm: Herrick, Feinstein LLP - New York Office
  • In the closing moments of 2012, the Internal Revenue Service issued Revenue Procedure 2013-12 which updates and revises the procedures for correcting operational and plan document errors in employee benefit plans in order to preserve the plan’s tax qualified status. The revenue procedure sets forth the terms and conditions for the Employee Plans Compliance Resolution System (“EPCRS”) which was last updated in 2008.

    While the new revenue procedure retains the three correction programs of the EPCRS (the Self-Correction Program (SCP), the Voluntary Correction Program (VCP), and the Audit Closing Agreement Program (Audit CAP)), the new revenue procedure streamlines the application procedures for the VCP and enhances and modifies the correction methods for various types of operational and document failures applicable to employee benefit plans. One of the more significant modifications to the EPCRS is the provision allowing Section 403(b) plans to correct a failure in the same manner that such failure could be corrected by a qualified plan. For example, under the EPCRS, tax exempt employers who sponsor Section 403(b) plans and who failed to timely adopt a plan document by December 31, 2009 can correct this failure through the VCP Program. To encourage voluntary compliance for the failure to timely adopt a Section 403(b) plan document, the VCP filing fee is reduced by 50% for submissions made by December 31, 2013.

    The new revenue procedure is generally effective April 1, 2013; however, plan sponsors may elect to use the new procedures any time after December 1, 2013.

    The update of the EPCRS signals the continued importance that the IRS places on voluntary corrections of operational and plan document failures of employee benefit plans. The costs of correcting such failures through the EPCRS process remains significantly lower than the costs that a sponsor may expect if the failure is discovered in an IRS audit. The issuance of the new revenue procedure emphasizes the need to periodically conduct internal audits of a sponsor’s employee benefit plans to identify any operational and document failures. Once the failures have been identified, Revenue Procedure 2013-12 provides a useful guide to determining the proper method for correcting such failures.