The IRS, responding to suggestions from the retirement plan industry, has expanded its self-correction program (SCP) for errors discovered in the operation of qualified retirement plans. The IRS made changes to the Employee Plans Compliance Resolution System (EPCRS), effective April 19, 2019.
New Plan Amendment Options
Under prior rules, plan failures generally could not be self-corrected by plan amendment. The new procedure allows such self-correction if:
- the amendment would result in an increase of a benefit, right or feature
- the increase is available to all eligible employees; and
- the increase is permissible under the Internal Revenue Code and is consistent with EPCRS correction principles.
Correction of Loan Errors
The Revenue Procedure greatly expands the self-correction of errors related to participant loans:
Defaulted loans – Loans that default due to failure to repay according to the plan terms may now be self-corrected by a lump-sum payment or re-amortization of the loan without having to submit an application to the IRS.
Failure to obtain spousal consent – Loans issued without spousal consent may now be corrected by notifying the spouse to obtain the required signature.
Operational loan errors – Plans with issued loans in excess of the number of loans allowed by the plan, or where a plan does not allow loans, can now be corrected by an amendment, providing that the amendment satisfies the nondiscrimination requirements of the Internal Revenue Code.
Significant failures, such as a loan issued for an amount that exceeds the statutory limits, or with terms that do not comply with IRS regulations, can still only be corrected by submitting an application to the IRS.
The changes provided by the Revenue Procedure offer welcome relief from the prior rules, and offer a practical, low-cost solution to common plan issues. Please contact us with any questions regarding your plan.
If you have questions or would like more information, please contact Richard Green email@example.com or 844.4WINDES (844.494.6337).