Retirement plan sponsors are seeing changes to the Employee Plans Compliance Resolution System (EPCRS), which allows corrections to plan document form and plan operation errors. The updates ultimately make it easier and potentially less expensive to correct common plan errors.
In recent weeks, the Internal Revenue Service (IRS) has issued Revenue Procedure 2015-27 and Revenue Procedure 2015-28. Both make amendments to the Self-Correction Program (SCP), Voluntary Correction Program (VCP) and Audit Closing Agreement Program (Audit CAP).
The primary intention of Revenue Procedure 2015-27 is to correct plan overpayments, while also addressing other minor changes.
Alice Murtos, partner at Sutherland Asbill & Brennan LLP explains, “Up to this point, plan sponsors have been required to attempt to recover overpayments from participants, a significant financial burden in some cases. The IRS has clarified that plan sponsors do not have to seek repayment in all cases if they are willing to undertake a more appropriate correction, such as making a corrective contribution to the plan or adopt a retroactive amendment.”
The revenue procedure also allows for excess annual additions under IRS Code Section 415(c) may now be “self-corrected” by distributing excess amounts no later than 9 1/2 months after the plan’s limitation year. Currently excess annual additions must be distributed within 2 1/2 months after the plan’s limitation year.
Revenue Procedure 2015-28 includes new safe harbor methods for correcting elective deferral failures. “Rather than requiring plan sponsors to make up 50% of a participant’s missed deferrals, the new correction methods allow plan sponsors to correct certain short-term failures without making any contribution for missed deferrals, and certain longer-term elective failures by making a corrective contribution of 25% of a participant’s missed deferrals,” says Brenna M. Clark, associate at Sutherland Asbill & Brennan LLP. “The plan sponsor will still have to make up any missed matching contributions, regardless of the length of the failure.”
The new, less expensive method for correcting automatic enrollment failures is similar. Plan sponsors may be able to make corrections without making any contribution for missed deferrals. Ability to do so will depend on when the failure is discovered and corrected, and the sponsor will still have to make up missed matching contributions, Clark says.
She adds that plan sponsors are incentivized to review their plan administration and make necessary corrections, as VCP filing fees have been reduced for the more common required minimum distribution and loan errors.
“The updates to the EPCRS set in Revenue Procedure 2015-28 are great news for both plan sponsors and advisers,” says Jamie Kertis, retirement plan specialist, Grinkmeyer Leonard Financial. She notes that it eases the administrative burden of adding automatic enrollment.
Kertis observes a trend where plan sponsors add automatic enrollment because they care about the retirement readiness of their employees and want to do what they can to encourage participation. In cases where sponsors do not choose automatic enrollment, the feeling of responsibility to encourage retirement readiness persists, however the sponsor is weary of the cost and time burden associated with potentially operating the provision incorrectly. “The update to EPCRS should go a long way in helping those cautious plan sponsors make the decision to go forward with adding automatic enrollment,” she contends.
With regard to Revenue Procedure 2015-27, Kertis believes plan sponsors will be encouraged to complete VCP for mistakes. She says the update should help plan sponsors whose recordkeeping or payroll system failed them when determining the 415(c) limits, adding that the 9 1/2-month correction time frame should ease some of that burden.
With a word of caution, Kertis reveals she would have liked to see additional leeway in Revenue Procedure 2015-28 with reference to the employer match. “There will still be an administrative time cost and financial impact to requiring a plan to make up the missed match for the period of time the deferral was not withheld,” she explains. “In a time where we are finally starting to see employer matches return, I do not like to see any regulation that discourages the use of an employer match.”