One of the longstanding, basic tenets of the qualified retirement plan world is the concept of self-policing. Few sectors rely so heavily on participants policing, reporting, and correcting their missteps with so much at stake. The fact of the matter is that the regulatory agencies do not have the resources to adequately police the retirement plan space.
The Internal Revenue Service (IRS) has a robust corrections program known as the Employee Plans Compliance Resolution Systems (EPCRS.) This system is predicated on plan sponsors discovering plan errors, known as operational defects, and correcting them promptly either through a self-correction process or through a formal process via EPCRS.
The EPCRS is outlined through several revenue procedures. The IRS continues to try to make correcting operational defects more practical and less expensive with the hope that employers closely monitor their plans and correct errors as soon as they are discovered. The IRS recently released yet another revenue procedure, Rev. Proc. 2019-19, in an effort to increase employers’ ability to self-correct certain plan errors without going through the formal EPCRS process. This helps avoid the correction submission fee and advisor fees associated with preparing the formal submission.
A general description of the changes in the revenue procedure is detailed below:
- Certain plan document failures can now be self-corrected. This is a significant change as previously all such failures had to be formally corrected. These failures are considered significant and therefore plan documents must have a favorable determination letter for individually designed plans, or an opinion letter for preapproved plans. Failure to initially adopt a plan document does not fall under this change.
- Self-correction of certain operational failures can now be done by retro-active plan amendment. This is a long-awaited change. Failures that result in increased benefit to employees, is available to all eligible employees, and satisfies the overall principals of the code and EPCRS are eligible for this methodology.
- Self-correction of certain plan hardship and plan loan failures via retro-active amendment.
- Self-correction of various loan failures as long as the correction methodology is consistent with corrections previously prescribed under the EPCRS revenue procedures. Self-correction is not available for loans in excess of allowable limits or for terms outside of the regulatory parameters.
Maintaining a retirement plan is not an easy endeavor. Plan sponsors should be ever diligent in developing and following internal control procedures in an effort to discover missteps as soon as possible. The sooner errors are detected, the easier they are to correct and oftentimes at a much lower cost. Rev. Proc. 2019-19 is another example of how the IRS is attempting to encourage employers to aggressively monitor their plan by easing some of the correction rules.
If you should have any questions, please contact Mark Flanagan of Aronson’s Compensation and Benefits Practice at 301.231.6257.