Retirement plans are a complex, vital part of your organization. As a plan sponsor, you understand the importance of remaining engaged with the ins and outs of your plan – there are a great deal of rules, regulations and considerations you have to keep in mind to remain in compliance.
Plan sponsors: Employee Plans Compliance Resolution System, or EPCRS, is your friend. This solution is the result of years of attempts and tweaks by the IRS, and the final product is a wonderful amalgam of several good ideas. Therefore, now that you have spent countless hours cultivating a sophisticated retirement plan, the smallest mistake or omission will not have the chance to draw the ire of the Internal Revenue Service (IRS). Most importantly, the future financial security of your employees and your plan’s tax-favorable status are intact. Thankfully, EPCRS is a viable alternative to non-compliance.
The complicated nature of your retirement plan – and the details of EPCRS – may appear challenging on the surface, but the result of Clark Schaefer Hackett’s years of focus on this part of the process allow us to provide you key information in this area.
A small slip can lead to non-compliance
Falling out of compliance can happen quickly and discreetly. This is a problem for many organizations. Misunderstandings, mistakes and even a lack of awareness, such as missing the announcement of a new law, can cause problems. As a result, your retirement plan may soon be scrutinized by the IRS and the U.S. Department of Labor (DOL). Instead of losing any fiscal benefits you’ve accrued over the years, take advantage of EPCRS to correct any mistakes. It is a relatively simple and effective measure – and, if you don’t, issues will only multiply.
So then, what do you need to know about EPCRS? For starters, an IRS solution designed to correct compliance issues has been in existence for several decades, and today’s EPCRS version is the combination of many of the best ideas that occurred over the years. Therefore, it is well-designed to handle any issue you may encounter. If you make a mistake, EPCRS is there as an option to voluntarily remedy the situation and avoid consequences. Above all else, any corrections should take place immediately.
For an in-depth explanation of the nuances of non-compliance, please consult this additional guidance from CSH. Furthermore, here are some details that will help you maintain a compliant, tax-qualified plan.
IRS provides three options for self-correction
At its core, The IRS has broken down EPCRS into three main components: Self-Correction Program (SCP), Voluntary Correction Program (VCP) and Audit Closing Agreement Program (Audit CAP).
Each of these three elements requires a different level of engagement, both from you and the IRS. For example, the first option – SCP – is designed to be the easiest and simplest way to correct compliance issues, and requires you to have practices in place besides the plan document to make compliance an easy task.
The next level is the VCP, which requires a submission to the IRS, along with an outline of the mistakes and proposed correction options. A fee is also a part of a VCP. Finally, you may be subject to an Audit CAP. This option only becomes available when you are under audit, and any mistakes identified here will require you to enter an agreement with the IRS and pay a fee.
EPCRS can address a wide range of topics
Ideally, non-compliance will never be an issue for your organization. However, that sometimes isn’t possible, and that makes EPCRS so valuable for plan sponsors. Even so, all sponsors should implement effective administrative practices to ensure that benefit plans are in order, and if any problems do arise they must be corrected immediately.
When it comes to errors, there are several that appear frequently, according to the IRS. These failures addressed by EPCRS include:
1. Plan Document failure
This type of error refers to failure by the plan sponsor to properly amend their document in a timely fashion. For example, if a new qualification requirement goes into effect – and the sponsor does not update their plan – it is considered a plan document failure. Certain failures that do not fall under any of the other categories first can also be considered a plan document failure.
2. Operational failure
Operational failures come into play if the plan sponsor does not follow their plan’s requirements. It is possible to avoid such an error by first retroactively amending the document in a timely fashion to correct any non-compliance issue. If that change has been made, but the amendment was not followed, it is still considered an operational failure.
3. Demographic failure
Plan sponsors may also come across demographic failures. The IRS explained that this issue is related to failure to meet the provisions of sections 401(a), 401(a)(26) or 401(b). This is only the case if the mistake does not first fall under a separate category. Correcting this is often completed by amending the document to increase the amount of available benefits.
4. Employer eligibility failure
An employer eligibility failure refers to when a plan sponsor implements a plan with a qualified cash or deferred arrangement but does not meet the eligibility requirements. Essentially, if you institute a plan you do not qualify for, it is considered this type of failure.
EPCRS can become reality for any plan sponsor
Non-compliance can happen to any plan sponsor. With EPCRS, it is relatively simple to correct mistakes with a set time frame and avoid IRS consequences. However, even the most obvious corrections may be more complicated than they appear. With an advisor, performing an SCP, VCP or Audit CAP will go smoothly, and there won’t be a chance of additional mistakes that can further jeopardize compliance.
At Clark Schaefer Hackett, we have decades of experience working closely with plan sponsors and organizations across a wide range of industries. When consulted, we’ve helped administer a quality benefits plan, consult on all related topics and offer crucial advice to correct mistakes and preserve your tax-favorable status.