IRS Updates the EPCRS Voluntary Correction Program

When something goes wrong in a retirement plan, employers look to the IRS voluntary correction program known as Employee Plan Compliance Resolution System (EPCRS) to fix the problem.  The IRS recently updated EPCRS in Revenue Procedure 2021-30 (RP 2021-30).  The new procedure contains many good, albeit substantial changes which are outlined below. Most provisions are effective July 16, 2021, unless noted below.


  • Expanded the self-correction period for significant failures – a plan sponsor may fix significant operational or document failures under the ECPRS Self-Correction Program (SCP). Self-correction means the employer corrects the failure and does not submit any information to the IRS to review the correction.  Insignificant failures may be self-corrected at any time with no time limits.  Significant failures must be fixed within a certain period of time in order for employers to self-correct.  In RP 2021-30, the IRS extended this time by one year in which significant failures may be self-corrected.  Employers now have until the last day of the third plan year following the plan year in which the failure occurred. For example, if a significant operational failure occurred in plan year ending December 31, 2020, the employer now has until December 31, 2023 to self-correct.  Under prior rules, the deadline was December 31, 2022.  

Employers also have an additional year to correct failed ADP/ACP testing.  They now must correct these failures by the last day of the fourth plan year following the plan year in which the failure occurred.  This extra year will be very helpful for plan sponsors when they don’t discover errors immediately when they happen.

  • Retroactive plan amendments to correct operational failures under self-correction – the IRS allows a plan sponsor to self-correct an operational failure that occurred because the operations of the plan did not match the plan document.  For certain failures, the IRS allows employers to adopt an amendment to the plan to conform the terms of the plan with the plan’s prior operations.  The correction amendment must provide an increase of a benefit, right, or feature, must not be discriminatory, must meet other compliance requirements, and the amendment must follow all the rules of EPCRS.  Under the prior EPCRS Revenue Procedure 2019-19, the IRS required that the increase in the benefit, right, and feature in the plan amendment apply to all eligible employees.  If the operational failure did not involve all eligible employees, employers could not amend under SCP but would need to file a voluntary correction program (VCP) filing with the IRS.  The elimination of the correction amendment applying to all eligible employees will now allow many more operational failures to be corrected via a plan amendment under SCP. 
  • Missed Deferral Elections – one of the most common mistakes made in a 401(k) or 403(b) plan is not timely starting an employee’s deferral elections into the plan. Historically, when a plan sponsor made this mistake, the IRS required that they contribute 50% of the missed deferral plus 100% of any missed match, plus lost earnings.  This was true even though the affected employee received the missed deferral in his or her paycheck.  In more recent years, the IRS has favorably reduced the amount an employer must make up for missed deferrals.  The percentage of the missed deferrals the employer must make up is based on the plan design, when the correction is being made, and if the employer provides a notice to the affected employees within 45 days of the correction.  This article does not describe all the rules surrounding missed deferrals and correction methods, but employers should be aware of two changes in the new revenue procedure.
    1. Automatic enrollment plans – under the prior Revenue Procedure 2019-19, for employees who are subject to an automatic enrollment feature in the plan, generally if the correction is made no later than 9 ½ months after the end of the plan year, the employer does not need to make up a missed deferral.  The employer must still make up the match on the missed deferral, plus lost earnings.  This provision expired as of December 31, 2020, so the employer would have to make up part of the missed deferral if the mistake was not caught soon enough.  In RP 2021-30, this provision has been extended until December 31, 2023, and is retroactively effective from January 1, 2021.  This extension will save employers money for a few more years.
    2. Non-automatic enrollment corrections – for missed deferral corrections that do not involve automatic enrollment and which are not corrected within 3 months of the failure, the IRS requires that employers make up 25% of the missed deferral plus any missed match and lost earnings. Previously, in order for employers to only have to make up 25% of the missed deferral, the correction must have been made no later than the last day of the second plan year following the plan year in which the failure occurred.  This correction period has now been expanded another year so the correction must have been made no later than the third plan year following the plan year in which the failure occurred.  This will allow employers additional time to make corrections so that the missed deferral correction amount is less.  
  • Elimination of anonymous VCP filings – for significant failures, document failures, or failures not described in EPCRS, employers typically submit a Voluntary Correction Program (VCP) filing with the IRS.  Prior to January 1, 2022, plan sponsors can submit an anonymous VCP filing with the IRS to determine how the IRS will allow them to correct certain failures.  If the plan sponsor agrees with the IRS’ correction method, the plan sponsor discloses its name to the IRS, and then the VCP is ultimately resolved and closed.  If the plan sponsor does not agree with the IRS method of correction, the employer may withdraw the filing with the IRS.  

Effective January 1, 2022, the IRS will no longer accept anonymous VCP filings and employers may request a no-cost, pre-submission conference with the IRS regarding corrective actions for any failure that is eligible under VCP.  A VCP pre-submission conference may be requested only:

    1. for matters on which a compliance statement may be issued under RP 2021-30;
    2. for correction methods that are not safe-harbor correction methods in Appendix A or B in the revenue procedure; and
    3. if the plan sponsor is eligible and intends on submitting a VCP filing with the IRS.

The plan sponsor’s representative must file a VCP pre-submission conference request via the website and include filing forms containing information about the failure(s) and correction(s).  A conference is held at the discretion of the IRS and as time permits.  At the conference, the IRS will provide oral feedback which will be advisory only and is not binding on the IRS and cannot be relied upon when filing under the VCP if the employer chooses to proceed with a VCP filing.  A written confirmation of the conference will be provided by the IRS and the case will be closed, at which time the employer will need to decide whether they should file a VCP.  Because the oral feedback may not be relied upon, plan sponsors will need to determine if this pre-submission conference will be worth the time and effort to file. This process may significantly slow down the correction process, as well.

  • Recoupment of overpayments – overpayments are when participants receive more money from a retirement plan than the amount to which they are entitled. EPCRS Revenue Procedure 2021-30 expands the corrections available for this type of failure.  In all plans, plan sponsors may now allow overpayment recipients to repay the overpayment in a single sum, installments, or adjustments in future payments.  For defined benefit plans, there are two methods added for overpayment corrections.
    1. Funding exception correction method – corrective payments are not required for a plan subject to IRC Section 436, if the plan’s certified or presumed adjusted funding target attainment percentage (AFTAP) is equal to at least 100%.  Future benefit payments to the overpayment recipient must be correct but no further correction is allowed.  The plan sponsor must notify the overpayment recipient that the overpayment was not eligible for a tax-free rollover.
    1. Contribution credit correction method – the amount of the overpayment required to be repaid to the plan is the amount of the overpayments reduced (not below zero) by a) the cumulative increase in the plan’s minimum funding requirements attributable to the overpayments and b) certain additional contributions in excess of minimum funding requirements paid to the plan after the first of the overpayments was made. Once the contribution credit correction method reduces an overpayment to zero, no further corrections are allowed.  If a net overpayment remains after the application of this correction method, the employer or another party must take further action to reimburse the plan for the remainder of the overpayment.  The plan sponsor must also notify the overpayment recipient that the overpayment was not eligible for a tax-free rollover.
  • Increase in de minimis threshold for certain corrections – the IRS increased the threshold amount for which employers are not required to make overpayment and excess amount (amounts allocated in excess of a plan or statutory limit) corrections. The amount increased from $100 to $250.

For more information on the EPCRS program changes, visit the IRS website:  IRS EPCRS Information.

For more information on the EPCRS and correcting mistakes, see our prior blog.

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