IRS Releases Updated EPCRS Guidance

The IRS has released Revenue Procedure 2021-30, which contains long-awaited guidance updating the Employee Plans Compliance Resolution System (EPCRS). Plan sponsors use EPCRS to correct certain plan qualification failures. EPCRS is composed of the Self-Correction Program (SCP), the Voluntary Correction Program (VCP) and the Audit Closing Agreement Program (Audit CAP), and there are several noteworthy changes.

Elective deferral failure—sunset of safe harbor extended
The sunset provisions of safe harbor correction methods for elective deferral failures related to automatic contribution features have been extended from December 31, 2020 to December 31, 2023.

Self-correction of certain significant operational failures extended
The last day for self-correction of certain significant operational failures and plan document failures has been extended by one year. The new deadline is the last day of the third plan year (instead of the second plan year) following the plan year for which the failure occurred.

Anonymous submissions eliminated
Effective January 1, 2022, the existing anonymous submission procedure is eliminated. But also effective January 1, 2022, the IRS will have the discretion to make anonymous VCP pre-submission conferences available to discuss correction methods not described as safe harbor methods in the Revenue Procedure. The process requires submitting a pre-submission conference request (using Form 8950) and providing sufficient details about the failure so that the IRS can evaluate the request. The conference is advisory only and cannot be relied upon as a basis for obtaining relief under EPCRS.

New correction methods for overpayments added
Plan sponsors may now provide overpayment recipients with the option of repaying an overpayment 1) in a single sum payment, 2) through an installment agreement, or 3) through an adjustment in future payments. For defined benefit plans, additional new methods are outlined.

  • Funding exception correction method – This method allows single employer defined benefit plans that are subject to the funding limits in Internal Revenue Code Section 436 to avoid corrective payments so long as the plan’s adjusted funding target attainment percentage (“AFTAP”) is equal to at least 100 percent. Future benefit payments to an overpayment recipient must be reduced to the correct benefit payment amount.
  • Contribution credit correction method – This method allows the overpayments to be reduced by the cumulative increase in the plan’s minimum funding requirements attributable to the overpayment. If overpayments remain after application of the credit, the plan sponsor or another party must reimburse the plan for the remainder of the overpayment.

Revenue Procedure 2021-30 is effective today, July 16, 2021, with the exceptions noted above. The Treasury Department and the IRS invite comments, and they can be submitted electronically or in writing by October 14, 2021.