IRS Updates Retirement Plan Correction Procedures

On December 31, 2012, the IRS issued Revenue Procedure 2013-12 to update its Employee Plans Compliance Resolution System (“EPCRS”), which is comprised of the Self-Correction Program (“SCP”), the Voluntary Correction Program (“VCP”), and the Audit Closing Agreement Program (“Audit Cap”). Although most changes were made for purposes of clarification or to reflect updates in applicable law, notable substantive changes include the following:

403(b) plan sponsors can now correct failures arising from noncompliance with form and operational requirements under the 403(b) final regulations and other IRS guidance. The corrections can generally be made in the same manner as a plan qualified under Section 401(a) with the same failure.
403(b) plan sponsors can also now correct the failure to timely adopt a written plan.
VCP application forms (Forms 8950 and 8951) must accompany all VCP submissions made under Revenue Procedure 2013-12.
Plan sponsors can use the SCP to correct certain recurring excess annual additions (Section 415(c) failures) if certain actions are taken within a specified time.
The Revenue Procedure clarifies that submissions outside of EPCRS relating to 457(b) plans are generally limited to plans sponsored by governmental entities.
Certain revisions have been made to make the safe harbor correction methods for missed deferrals in 403(b), SIMPLE IRA, and safe harbor 401(k) plans consistent.
Clarification has been provided that forfeitures cannot be used to fund Qualified Nonelective Contributions (“QNEC contributions”) to correct Actual Deferral Percentage (“ADP”), Actual Contribution Percentage (“ACP”), or multiple-use test failures under the safe harbor correction method.
Noncompliance with funding-based limits under Section 436 can now be corrected.
Certain limited failures may now be eligible for reduced VCP fees. Although generally effective April 1, 2013, the Revenue Procedure can be applied for any EPCRS submission on or after December 31, 2012. A copy of Rev. Proc. 2013-12 can be obtained here.

For more information, please contact your SGR Executive Compensation and Employee Benefits Counsel.