Accidents Will Happen

Accidents Will Happen

If you’ve spent any time working with retirement plans, you know how complicated they can be.  It seems like every rule has an exception and an exception to that exception.  It is no wonder that accidents occasionally happen - and correction is required - despite everyone’s best efforts to follow the rules.

Fortunately, the IRS also understands that accidents will happen, so they created a very useful program for plan sponsors to voluntarily correct those accidents and avoid the unpleasant experience of having oversights discovered during an audit.  The first version of the correction program appeared in 1998.  Now on its tenth incarnation, the IRS published the most recent update on December 31, 2012…and I was only tempted for a half second to spend my New Years Eve reading it.

The Employee Plans Compliance Resolution System or EPCRS is comprised of three components – the Self Correction Program (“SCP”), the Voluntary Correction Program (“VCP”) and the Audit Closing Agreement Program (“Audit CAP”) – all of which are focused on putting the plan in the position it would have been had the error not occurred. While far from original, the names are fairly self-explanatory.

SCP allows for the correction of operational mistakes (not following the terms of the plan document) that are recent and/or insignificant, without asking the IRS for approval.  For mistakes that are significant and happened more than 2 years ago, VCP provides a mechanism to confess and ask the IRS to approve the correction.  There is a user fee tied to the number of plan participants, but there are not any penalties beyond that.

Generally speaking, once a sponsor receives notification of an impending audit, SCP and VCP are off the table.  Audit CAP describes the procedures for dealing with problems if the IRS finds them before the plan sponsor fixes them.

Over the next few weeks, I will add a few follow-up posts to describe how to correct some of the more common errors that occur.  If you would like to ready more about EPCRS in the meantime, check out the Correcting Plan Errors page on the IRS website at www.irs.gov/Retirement-Plans/Correcting-Plan-Errors.

I have been invited to lead workshops on EPCRS in a few locations throughout the year.  If you are in the neighborhood and have an interest, I encourage you to attend and stop by to say hello.

  • April 4th – ASPPA Benefits Council of Atlanta (Atlanta, GA)
  • May 29th – ASPPA Benefits Council of Cleveland (Cleveland, OH)
  • August 10th – ABC of Central Texas (Austin, TX)
  • October 17th - ABC of the Great Northwest (Seattle, WA)
  • November 12th - ABC of Northern Indiana (Ft. Wayne, IN)