Correction Program No Longer A Puzzle in Pieces for Retirement Plan Sponsors

By Sheila Ninneman, J.D.

Revenue Procedure (Rev. Proc.) 2016-51, issued by the Internal Revenue Service (IRS) on September 29, 2016, modifies and restates the Employee Plans Compliance Resolution System (EPCRS) set forth in Rev. Proc. 2013-12. Although not old, the soon-to-be superseded Rev. Proc. 2013-12 had already been modified twice in Rev. Proc. 2015-27 (adding correction options for some overpayments) and Rev. Proc. 2015-28 (making correction of some elective deferral errors easier). In addition, it was at odds with the newly modified Determination Letter Program (DL Program) set forth in Rev. Proc. 2016-37. Putting the puzzle pieces together was becoming a challenge, especially when pieces relating to the DL Program were missing.

Rev. Proc. 2016-51 puts the pieces together. The Rev Proc. is effective January 1, 2017. However, unlike prior versions of EPCRS that allowed plan sponsors to rely on such guidance prior to the official effective date, Rev. Proc. 2016-51 cannot be relied on before its effective date.

What's New in Rev. Proc. 2016-51?

Determination letter applications are no longer permitted as part of EPCRS corrections that include amendment(s) to the plan. Moreover, the Rev. Proc. clarified that a compliance statement issued upon correction through plan amendment will not constitute a determination that the amendment satisfies qualification requirements.

The Self Correction Program (SCP) has been modified so that a qualified individually designed plan can still satisfy the Favorable Letter requirement when correcting significant failures even if its determination letter is not current.

For Voluntary Correction Program (VCP) user fees, a plan sponsor must review the annual revenue procedure that provides all user fees for that year.

The model forms for a VCP submission have been eliminated from Rev. Proc. 2016-51, which now provides that model VCP forms can be found on the IRS website.

Fees for the Audit Closing Agreement Program (Audit CAP) will no longer be a negotiated percentage of the Maximum Payment Amount (MPA), but will be determined by the IRS on a "facts and circumstances" basis and will not be less than VCP fees. The MPA will be considered as a factor in determining the sanction.

If there is a disagreement over correction in an Anonymous Submission, the IRS will no longer refund half of the user fee.

What's Old in Rev. Proc. 2016-51?

The provisions of Rev. Proc. 2015-27 have been incorporated, including elimination of any reference to the Social Security letter forwarding program (no longer in existence), extension of SCP eligibility to certain plans with repeated corrections of excess annual additions so long as elective deferrals are returned to affected employees within 9½ months after the end of the plan's limitation year, and making correction of overpayments based on benefit calculation errors more flexible.

The provisions of Rev. Proc. 2015-28 have been incorporated , including a safe harbor correction method for certain elective deferral failures related to missed deferral opportunities for employees subject to plans with an Automatic Contribution Arrangement (ACA), a safe harbor correction method for elective deferral failures that do not exceed three months, and a safe harbor correction method for elective deferral failures that exceed three months but are within the SCP correction period (ends the last day of the second plan year after the plan year in which the failure occurs.

Questions? Contact the Findley Davies consultant with whom you normally work or either Sheila Ninneman, J.D. or Jason Rothman, J.D.

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