On December 31, 2012, the Internal Revenue Service (the “IRS”) released Revenue Procedure 2013-12, which contains long-awaited updates to the Employee Plans Compliance Resolution System (“EPCRS”), previously set forth in Revenue Procedure 2008-50. EPCRS is the IRS system for correcting errors in employer-sponsored retirement plans, which consists of three programs: the self-correction program (“SCP”), the voluntary correction program (“VCP”), and the audit closing agreement program (“Audit CAP”). Revenue Procedure 2013-12 is effective April 1, 2013, but plan sponsors may utilize it earlier.
Revenue Procedure 2013-12 streamlines VCP procedures, adds welcome relief for sponsors of 403(b) plans, and makes other refinements to account for recent law changes and to clarify portions of the current EPCRS, some of which are described below.
Streamlined Procedural Requirements.
Many of the changes in Revenue Procedure 2013-12 streamline and formalize the VCP application procedures. Procedural changes include the following:
- New and streamlined appendices that contain model VCP Schedules;
- Guidance regarding correction by retroactive amendment for employers that use pre-approved plan documents;
- Clarifying when a determination letter application is required with a VCP submission; and
- Updates regarding required actions to locate lost or missing participants.
Relief for 403(b) Plans.
Previously only certain types of errors in plans established under section 403(b) of the Internal Revenue Code of 1986 (the "Code") could be corrected through EPCRS. Revenue Procedure 2013-12 delivers parity for 403(b) plans by making all types of EPCRS relief available to 403(b) plans. The following new relief is available for 403(b) plans:
- In general, EPCRS and its correction methodologies are available to 403(b) plans on substantially the same terms as tax-qualified plans.
- 403(b) sponsors that did not adopt a written plan document timely may correct the error through the nonamender VCP. The compliance fee is reduced by 50% if the VCP submission is made by December 31, 2013.
- A 403(b) plan is treated as having a favorable determination letter (which is required to self-correct through SCP) if the written plan document was adopted timely, or if the failure to timely adopt is corrected through VCP.
Revenue Procedure 2013-12 made several other revisions to EPCRS, including the following:
- Correction methodology is described for errors involving Code section 436, which imposes restrictions on underfunded defined benefit plans.
- SCP can be used to correct recurring excess annual additions (Code section 415(c)) if corrective distributions are provided within a specified period and the plan contains consistent provisions.
- The IRS will accept submissions relating to Code section 457(b) plans of governmental employers on a provisional basis, outside of EPCRS, applying similar correction principles.
- Streamlined VCP is available for failure to timely adopt an amendment required as part of a prior VCP application, and a reduced $500 fee applies if the error is corrected within three months.
- Clarification was provided regarding actuarial equivalence factors to be used to determine corrective distributions from defined benefit plans.
The IRS will accept comments regarding EPCRS on an ongoing basis. If you have questions or comments about EPCRS or any error affecting an employer-sponsored plan, please contact one of the authors.
Client Alert 2013-004