Over the last few weeks, I have spoken with at least four plan sponsors who just became aware that they missed the April 30, 2010 deadline to restate their plan documents for EGTRRA. For those in certain federally declared disaster areas, the deadline was extended to July 30, 2010.
It turns out that missing a deadline to amend or restate a plan for tax law changes is one of the most common errors found in a review of voluntary plan corrections. While it might not seem like that big of a deal, failure to timely update the plan document can result in significant penalties, including plan disqualification in extreme cases.
Fortunately, the IRS has created a path to redemption through its Employee Plans Compliance Resolution System (“EPCRS”) that includes a streamlined voluntary correction program (called streamlined VCP – I know, creative naming, huh?) for those who have missed an amendment or restatement deadline.
Taking advantage of the program is a relatively straight-forward process. The first step is to
restate your plan document as soon as possible to update it for any outstanding tax law changes. The next step is to submit the restated documents to the IRS along with several forms for their review and approval.
Perhaps the best news is that the IRS is offering 50% off their normal review fee for those who use EPCRS to correct a missed EGTRRA restatement. The fee is determined based on the number of participants in the plan, as reported on the most recently filed Form 5500. Here is the breakdown for plans of varying sizes up to 500 participants:
- 20 or fewer participants = $375
- 21 to 50 participants = $500
- 51 to 100 participants = $1,250
- 101 to 500 participants = $2,500
These discounted fees are only available if the missed restatement is the only failure and the correction is submitted to the IRS for review by April 30, 2011. Also note that the deadlines described above pertain to those using prototype or volume submitter plan documents.
EPCRS is also available to correct a wide variety of other plan errors, many of which do not require any type of formal filing with the IRS.
Although the correction process is relatively straight-forward, it is always a good idea to work with an experienced benefits professional. These are tax forms after all, and no matter how many or how few must be included, they can get confusing. Keep in mind that only certain types of professionals are permitted to represent you in a corrective filing. These include licensed attorneys and CPAs, enrolled actuaries, enrolled agents and enrolled retirement plan agents. Others may be familiar with correction methodologies, but only one of these so-called "enrolled preparers" is able to work with the IRS on your behalf.
By following this program (not even a 10-step program, at that), you and your plan can move forward with a clean conscience. And, while your checkbook may be a little bit lighter, the discounted user fees are much less than the IRS penance that may otherwise be imposed.