Correcting Mistakes

With all the rigorous rules surrounding qualified retirement plans and the minutiae associated with administering a plan, mistakes happen every now and then. Years ago, the IRS determined that plan sponsors need guidance on how to fix these errors to make things right for the participants in the plan, so they created a voluntary correction program. The program’s rules are laid out in a Revenue Procedure referred to as the Employee Plans Compliance Resolution System (EPCRS).

Under the EPCRS program, there are three correction programs:

  • Self-Correction Program (SCP)– make corrections without contacting the IRS
  • Voluntary Correction Program (VCP) – submit corrections that are not eligible for self-correction to the IRS and obtain their written correction agreement
  • Audit Cap – used to resolve failures during an IRS plan audit


The IRS has continued to expand EPCRS. Earlier this year, they included additional guidance in Revenue Procedure 2019-19. The good news…the IRS has expanded the self-correction program for issues previously recommended for VCP. Below is a list of some of the expanded self-correction failures and other changes:

  • Correction options and relief for participant loan failures:
    • Defaulted loans – previously, where an employer caused a participant loan to default (fails to withhold loan payments from a paycheck), they were required to file a VCP in order to avoid taxation on the loan to the participant. Currently, as long as the maximum loan repayment period from the original loan date has not expired, the sponsor can permit a correction of this failure by either a single-sum repayment, re-amortization of the loan, or a combination of the two.
    • Number of loans exceeded – if the plan limits the amount of loans participants may take at one time and that number is accidentally exceeded, employers may self-correct by adopting a retroactive amendment to increase the loan limit as long as loans are available to all eligible participants or only to non-highly compensated employees.
    • Failure to obtain spousal consent – if the plan requires spousal consent for participant loans and consent is not obtained, the plan sponsor can obtain the consent at the time of discovery. If consent is not obtained, a VCP should be filed or if the IRS audits the plan, penalties under Audit CAP may apply.
  • Self-correction of plan document failures – there are two changes:
    • Failure to amend the plan when required – periodically, employers must amend their plans to comply with current law. If an amendment was missed, now employers can self-correct by retroactively amending the plan no later than the last day of the second plan year following the year in which the amendment should have been adopted. Note – this was updated in Revenue Procedure 2021-30 to the third plan year following the year in which the amendment should have been adopted.  Refer to our blog which discusses the changes made in Revenue Procedure 2021-30.
    • Operational failures where amendment is required – in situations where the operation of the plan does not follow the terms of the plan document, the IRS has expanded the ability to make retroactive amendments to conform the document to the operation of the plan. The plan document must have an IRS favorable determination letter or the document must be an IRS pre-approved document. Generally, the correction amendment must increase benefits to all eligible employees in the plan, must not be discriminatory and must follow other requirements set forth in the law and the EPCRS Revenue Procedure. If these requirements are not met, a corrective retroactive amendment should be submitted to the IRS via VCP in order to resolve the failure. There are timing rules for when the amendments need to be signed based on the nature of the failure, whether it is a significant or insignificant failure.
  • VCP submission process – All VCP submissions must now be filed electronically with the IRS using

In our experience, most employers want to self-correct plan failures, even those errors that should be submitted under the VCP program. The VCP program is voluntary so sponsors are not required to submit a VCP filing. However, if sponsors take the self-correction route for a failure that doesn’t meet the self-correction guidelines, they should carefully make corrections based on the guidance in the Revenue Procedure. Most importantly for all corrections: document, document, document! If an IRS audit occurs, sponsors should be prepared to present the correction documentation and hope the IRS agrees with the correction method. If the IRS disagrees with the method, the employer may be facing penalties under Audit CAP.

Employers should speak with their plan consultants and their ERISA counsel when these failures occur. TRI-AD assists our clients by assessing the failure, reviewing correction options with clients, assisting with IRS filings, if applicable, and maintaining documentation.

For more information, please visit the IRS website:

TRI-AD and our Associates’ suggestions or recommendations shall not constitute legal advice. No content on our website can be construed as tax or legal advice and TRI-AD may not be considered your legal counsel or tax advisor. Clients are encouraged to consult with their tax advisor and/or attorney to determine their legal rights, responsibilities, and liabilities. This includes the interpretation of any statute or regulation, federal, state or local; and/or its application to the clients’ business activities.