Compliance October 1, 2018

IRS Revenue Procedure Takes VCP Program Digital

In announcing a new digital process for self-disclosures and corrections of plan errors, the IRS also says it is currently developing guidance on “other issues relating to the Employee Plans Compliance Resolution System.”

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The Internal Revenue Service (IRS) has published Revenue Procedure 2018-52, which modifies and supersedes Revenue Procedures 2016-51 and 2016-42, the most recent prior consolidated statements of the various correction programs available to plan sponsors under the Employee Plans Compliance Resolution System (EPCRS).

As readers may know, the Employee Plans Compliance Resolution System permits plan sponsors to correct plan administration failures and thereby continue to provide their employees with retirement benefits on a tax-favored basis. The core components of EPCRS are the Self Correction Program (SCP), the Voluntary Correction Program (VCP), and the Audit Closing Agreement Program (Audit CAP).

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According to IRS, this update to the 2016-51 publication is “a limited update and is published primarily to set forth new VCP [Voluntary Correction Program] submission procedures, including the required use of the www.pay.gov website.”

Sections 2.02 and 2.03 of the new 2018-52 publication discuss the new VCP submission procedures in detail. Also of note, the new revenue procedure states that IRS and the Department of the Treasury “are currently developing guidance on other issues relating to EPCRS.” More detail about this is given in the general discussion in section 2.04.

Detail from Revenue Procedure 2018-02

According to IRS, in general, beginning April 1, 2019, plan sponsors must use the www.pay.gov website when filing a VCP submission and paying applicable user fees. To ease the transition to the new submission procedures, from January 1, 2019, through March 31, 2019, sponsors may file VCP submissions with the IRS either by using www.pay.gov in accordance with sections 10 and 11 of the new revenue procedure, or by filing paper VCP submissions in accordance with the procedures in sections 10 and 11 of the previous Revenue Procedure 2016-51. However, the IRS will not accept paper VCP submissions postmarked on or after April 1, 2019.

The detailed revenue procedure, stretching over 120 pages, lays out the step-by-step process plan sponsors must follow. Broadly speaking, an electronic VCP submission filed using the www.pay.gov  website must include many of the same documents as a VCP submission filed on paper pursuant to Revenue Procedure 2016-51. Given the new digital forum, there are key procedural differences.

First, for example, an applicant must use the www.pay.gov website to create a pay.gov account. This pay.gov account will be used when filing a VCP submission and paying applicable user fees. Second, after a pay.gov account has been established, the applicant must complete Form 8950, “Application for Voluntary Correction Program (VCP) Submission Under the Employee Plans Compliance Resolution System,” using the www.pay.gov website.  

There are various other procedural requirements, including that, beginning April 1, 2019, applicants are not permitted to submit a paper version of Form 8950.

Apart from setting new digital procedures for the submission/processing of user fees, IRS notes that documents relating to the VCP submission, including the description of failures, Form 14568 (Model VCP Compliance Statement), Schedules 1 through 9 of Form 14568, and any other applicable items (as set forth in section 11.04) for a VCP submission, generally must be converted into a single PDF. This document must then uploaded onto the www.pay.gov website.

There is a 15 MB size limitation for uploading a PDF document onto the www.pay.gov website; thus special instructions are provided for PDF files that exceed that limitation.

Future changes and enhancements

In the Revenue Procedure, IRS says it is expected that the agency and the Treasury Department will continue to update the EPCRS revenue procedures, in whole or in part, from time to time, “including further improvements to EPCRS based on comments received.”

“Accordingly, the IRS and Treasury Department continue to invite further comments on how to improve EPCRS,” the revenue procedure states.

Of note here, the Treasury Department and the IRS requested comments in Revenue Procedure 2015-27 “on potential changes to EPCRS relating to the recoupment of overpayments.” The Treasury Department and the IRS received and are reviewing responsive comments, and are in the process of developing further changes to modify the EPCRS rules on the correction of overpayments.

In addition, the Treasury Department and the IRS have received comments relating to expanding the Self Correction Program and are in the process of reviewing the comments received. According to the new revenue procedure, the Treasury Department and the IRS are considering changes to the program based on those comments.

The full text of Revenue Procedure 2018-52 is available for download here. 

In Practice October 1, 2018

PANC 2018: Now What?

How retirement plan advisers need to function as business owners in order to grow their practices.

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SeaPort Group, Morgan Stanley Institutional Wealth Services, is a five-person team operating out of the Pacific Northwest whose focus is retirement plans, said Josh Ulmer, senior vice president, speaking on the “Now What?” panel at the 2018 PLANADVISER National Conference.

The practice serves 44 retirement plans with $1.2 billion in assets. “In the past 12 to 18 months, we have used our presence to try and expand,” Ulmer said.

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After working as a recordkeeping wholesaler for 15 years, a few months ago, Chris Miller joined aggregator Pensionmark Financial Group as managing director. The firm has 105 producers and $52 billion in assets under management (AUM), Miller said.

Ulmer said that he has come to realize that if a practice wants to grow, “you have to function as a business owner” as opposed to merely an adviser. “The skillset may not come naturally, but in order to compete at the highest level, I made sure I had a firm understanding of our deliverables,” he said.

Pensionmark focuses on “people, process and product,” Miller said. “With technological advances and increasing competition in the retirement planning industry, there is more focus on participants than ever,” he said.

Ulmer attributes SeaPort Group’s success to “understanding how to create scale with service providers and investment solutions.” With respect to achieving the former, the practice only works with specialist service providers and acts as a relationship manager for those organizations. With regard to making the most of investment solutions, SeaPort Group “studies data,” he said. Ulmer has come to the conclusion that “few active funds add value.” The firm has also streamlined investment solutions across its client base.

Another thing that has helped SeaPort Group grow, he continued, is that the “team has clearly defined roles.” But one thing that is not scaleable is one-on-one meetings with participants, he said.

Pensionmark offers efficiencies for its affiliates in terms of client service, technology and investments, Miller said. “We handle all back office functions.” It also uses Payroll 360, middleware that can analyze retirement plan data in order to help advisers serve sponsors and participants better, he said.

While Ulmer is the only adviser on the SeaPort team, he said he realizes he may need to change that in the future. “If I want to continue to grow, I need to create career paths for my team to become advisers, and to give them the ability to win and retain clients,” he said.

Asked what he thinks are the leading sources of disruption in the retirement planning industry, Miller said it is the prospect of open multiple employer plans (MEPs), managed accounts and social media. He said it is imperative for practices to embrace social media, as many Millennials and Gen Xers communicate through those channels, as opposed to e-mails.

It is also important for advisers to address people’s financial concerns outside of 401(k)s, Miller said. Ulmer agreed that advisers need “a more holistic deliverable,” as well as to address “retirement income and distribution planning.”

An additional disruption that Ulmer thinks is taking form is “client expectations on how we use data specific to their plans, to improve outcomes and make better decisions. In order to get at that data, we need to know each recordkeeper’s capabilities, and they vary. Digital and automation will also disrupt our industry,” he predicted.

Pensionmark has gone beyond recordkeeper data on plans and participants to create its own aggregation tool, Miller said.

Asked what the biggest challenges in the next 12 to 18 months will be, Miller said one is “navigating all of the new technology products from the recordkeepers” and another is “building efficiencies to make practices better.”

Ulmer said he sees three challenges, with the first being the ability of retirement plan advisers to articulate how they truly differentiate themselves from their competitors. A second will be “demonstrating your value, actually showing sponsors how you impacted plans.” 

Thirdly, Ulmer expects equity market volatility could return over the next 36 months. With the bull market having lasted a decade, retirement plan advisers will find themselves working with “a whole generation that has not seen volatility,” he said. “This will be a great way to differentiate yourselves.”

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