The buck stops with the Department of Labor (DOL) and the Internal Revenue Service (IRS) when it comes to determining whether or not a retirement plan is considered “in compliance.” And, if found to be noncompliant, your clients could be looking at significant penalties and even IRS disqualification of their plans. Fortunately, correction programs are available to help fix errors that happen in spite of best efforts, and the more you know about them, the more you can ease client concerns.
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The IRS has developed the Employee Plans Compliance Resolution System (EPCRS) to assist your plan sponsor clients who are looking to fix instances of noncompliance. The DOL has a separate program to significantly reduce penalties associated with late or missed Form 5500 filings. The IRS program can be used to correct failures associated with the plan document and operation. Under EPCRS, there are two methods for correcting plan errors and, under each method, the onus is on the plan sponsor to implement the correction. In exchange, the IRS eliminates (or significantly reduces) penalties and agrees not to disqualify the plan.
The following correction programs are available depending on the facts and circumstances of the error(s):
- Self-Correction Program (SCP) – The easiest correction method, SCP allows plan sponsors to self-correct a variety of retirement plan operational errors without contacting the IRS or paying a fee. To be eligible SCP, an operational failure must either be 1) insignificant or 2) significant but corrected within two years of occurrence. Significance is determined by the facts and circumstances.
- Voluntary Correction Program (VCP) – This IRS program can be used to correct all types of qualification failures, including document errors. The fee to correct plan failures can range from $750 to $25,000, depending on the number of participants. In return for voluntarily submitting and correcting these failures, the IRS will provide relief in the form of a compliance statement, which will address the failures identified in the submission, the terms of correction and the time period within which corrections are to be made. Additionally, sponsors who take advantage of the VCP are expected to correct the failure in question for ALL years, not just the last three or four.
- Delinquent Filer Voluntary Compliance Program (DFVCP) – This DOL program, which helps plan sponsors avoid higher civil penalties assessed for late or missed filing of Form 5500, is available to those who have not been notified by the Department of Labor of a failure to file. To participate in this program, the plan sponsor must complete Form 5500 with the DOL for each year relief is requested and a second copy must be submitted to the DFVCP with applicable penalty amounts. Visit the IRS website for additional details.
Your plan sponsor clients have a lot on their plates already, but you can help ease their plan related compliance burdens. Mistakes can (and do) happen, which is why programs such as the ones outlined above are so important. When you find out about mistakes, just remember how these programs can help to reduce or eliminate penalties, and rely on a knowledgeable TPA to walk your client through the correction process.
Email the retirement plan administration services professionals at Rea & Associates to learn more about your options or for additional support.
By Paul McEwan, CPA, MTax, AIFA (New Philadelphia office)
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