On December 31, 2012, the Internal Revenue Service ("IRS") issued Revenue Procedure 2013-12. This new Revenue Procedure modifies and supersedes Revenue Procedure 2008-50 and provides significant changes to the Employee Plans Compliance Resolution Systems ("EPCRS"). Although the Revenue Procedure is generally effective April 1, 2013, plan sponsors may elect to apply its provisions earlier using the recently released application forms. Among other changes, the Revenue Procedure permits 403(b) plan sponsors to correct plan failures in the same manner as qualified plans, provides new submission procedures and forms, revises the actions that plan sponsors must take to locate missing participants, and updates some of the compliance fees.
The EPCRS program enables companies that sponsor qualified retirement plans (i.e.: 401(k)) to correct plan errors that could adversely affect the qualification of the plan resulting in adverse tax consequences for both the company and each individual employee. The four major types of failures that are correctable under EPCRS include plan document failures, operational failures, demographic failures and employer eligibility failures. In our experience, most client plan failures are classified as "operational failures" which arise when the company has simply failed to follow the terms of the plan. The most common operational failures involve (1) failure to use the correct definition of compensation for contribution purposes, (2) failure to include all eligible employees (part-time employees), (3) loan duration or repayments, (4) failure to implement an employee election and (5) exclusion of eligible employees from catch-up contributions. The EPCRS program provides three correction programs:
Having assisted several clients with identifying and correcting plan failures under SCP or VCP, we encourage companies to periodically review their 401(k) plan documents, processes and procedures in order to maintain the tax favored treatment for both the employee and the company. Should you have any questions on the operation of your 401(k) plan, please call your MFEM relationship attorney for assistance.
©2023 Masuda, Funai, Eifert & Mitchell, Ltd. All rights reserved. This publication should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended solely for informational purposes and you should not act or rely upon information contained herein without consulting a lawyer for advice. This publication may constitute Advertising Material.