Today the IRS issued an update to its retirement plan loan correction program that significantly expands the errors that can be corrected without filing with the IRS or paying a filing fee.
Most importantly, many plan loan errors can now be self-corrected. For example, if loan payments are missed but the maximum loan term (generally 5 years) has not yet expired, the loan can be corrected by repaying it in full or re-amortizing it over the original maximum loan term. This is the case even if the loan’s normal cure period has already expired. An IRS filing is no longer required to correct a loan in this way.
The updated correction program also expands the ability to correct by retroactive amendment without an IRS filing. For example, if a plan inadvertently granted participants a 5% matching contribution instead of the 3% matching contribution provided for in the plan, it appears that the plan could be retroactively amended to provide for the 5% match. The new program also allows self-correction of failures to timely adopt legally required amendments.
The new self-correction options are available immediately, creating an excellent opportunity to review plan operation and take advantage of these new simpler corrections.