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DISCLAIMER: This blog is published for general information only - it is not intended to constitute legal advice and cannot be relied upon by any person as legal advice.  U.S. Treasury Regulations require us to notify you that any tax-related material in this blog (including links and attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties, and may not be referred to in any marketing or promotional materials.  While we welcome you to contact our authors, the submission of a comment or question does not create an attorney-client relationship between the Firm and you. 

Entries in EPCRS (8)

Monday
Apr132015

EPCRS Revisions: The Second Act

For the second time in under a week the Internal Revenue Service released a series of updates to its most recent restatement of the Employee Plans Compliance Resolution System (EPCRS).  Revenue Procedure 2015-28 modifies EPCRS by outlining new safe harbor correction methods for plans with automatic contribution features and shorter term elective deferral failures.  The changes provide helpful relief to employers who maintain 401(k) and 403(b) plans by expanding the correction options for errors involving the implementation of elective deferrals or the improper exclusion of eligible employees from the plan.  Employers whose plans provide for automatic enrollment and automatic escalation of elective deferrals will find the new guidance especially advantageous.

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Thursday
Apr022015

IRS Clarifies the Correction of Overpayments under EPCRS

The IRS has clarified the correction of certain retirement plan operational failures under its Employer Plan Compliance Resolution System (EPCRS) and expanded certain elements of the program in ways that are helpful to retirement plan sponsors. The clarifications, contained in Rev. Proc. 2015-27, address what the IRS believes is an overly narrow or strict interpretation by plan sponsors of the requirements for the correction of overpayments and modify the correction program in other ways.

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Sunday
Jan132013

New EPCRS Guidance Expands Scope of 403(b) Plan Corrections

Nearly 20 years after the IRS first established a limited program for the correction of 403(b) plan administrative errors, 403(b) plans have finally been placed on equal footing with qualified plans with respect to the correction of operational, documentary, and demographic failures under the Employee Plans Compliance Resolution System (EPCRS).  The expanded scope of 403(b) plan corrections made possible by Revenue Procedure 2013-12 comes as welcome news for tax-exempt and governmental employers and their advisors.  The updated version of EPCRS officially takes effect April 1, 2013, but the guidance permits employers to rely on the 403(b) correction provisions beginning January 1, 2013.   

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Friday
Sep022011

Two Things EPCRS Does Not Tell You About Retroactive Amendments, But You May Want to Know

The Employee Plans Compliance Resolution System (EPCRS) is the IRS’ comprehensive correction system for tax-qualified retirement plans, currently set forth in Rev. Proc. 2008-50 (we expect a new EPCRS Rev. Proc. to be released in the near future).  One correction method under EPCRS allows operational failures to be voluntarily corrected using a plan amendment that conforms the term of the plan to the plan’s prior operation (the so-called “retroactive amendment” correction method).  Specifically, EPCRS states that an operational failure may be corrected under its voluntary correction program (VCP) “by plan amendment to conform the terms of the plan to the plan’s prior operations, provided that the amendment complies with the requirements of §§401(a), including the requirements of §§401(a)(4), 410(b), and 411(d)(6).”  See EPCRS §4.05(1).  

In our experience, however, the IRS imposes two additional requirements when an employer wants to fix an operational failure by retroactive amendment: (1) the applicant must demonstrate the employer’s intent during the period of the failure; and (2) the applicant must demonstrate the employees’ expectations during the period of the failure.  These additional requirements seem to be an important component of a successful retroactive amendment VCP application.  Indeed, in the March 22, 2011 BNA Pension and Benefits Reporter an IRS representative, discussing retroactive amendments in the context of a plan mergers, stated “you would have to give us enough documentation to show what the intent of the employer was and what the employees understood the benefits to be.”  In another example, the IRS put the requirement this way in its response to a VCP submission seeking to use the retroactive amendment correction method:

“Could you provide any evidence showing employer intent and employee expectation?  Such evidence might consist of meeting minutes, communications with consultants, and communications with employees.”

EPCRS does not state that there is any requirement that an applicant show either employer intent or employee expectation in order to be eligible to correct an operational failure via the retroactive amendment correction method.  In fact, the words “intent” and “expectation” are not in EPCRS.  Nevertheless, the IRS appears to consistently require evidence of intent and expectation before allowing retroactive amendments.  Perhaps we will see these requirements articulated in the updated EPCRS procedures.  Until then, an applicant should expect to answer these two somewhat unexpected questions after they have submitted a VCP application.  To be forewarned is to be forearmed.

Thursday
Jun232011

IRS Swamped by EPCRS Applications: The Price of Popularity

The IRS Employee Plans Compliance Resolution System (EPCRS) has been a true success story for the Service and for plan sponsors.  Under EPCRS, a plan sponsor may voluntarily correct a wide variety of errors made in the administration or drafting of a tax-qualified retirement plan, with a more limited range of errors correctable with respect to a 403(b) plan.  In some cases, the plan sponsor can self-correct without the need for any filing with the IRS while in other cases full correction can only be achieved with the approval of the IRS.  The EPCRS program, however, may be falling victim to its own popularity and those who use it may wish to adjust their tactics accordingly.  Here is one example. 

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