The IRS is allowing a higher percentage of errors made by plan sponsors to be reported using the Employee Plans Compliance Resolution System, under an interim rule issued by the agency. The new rule is meant to provide interim guidance on SECURE 2.0, which significantly expanded self-correction under the EPCRS.
The interim guidance became effective on May 25 and the agency is accepting comments on the proposal until Aug. 23. The guidance was issued as the agency implements the SECURE 2.0, which includes a provision that expands the EPCRS self-correction provision by allowing retirement plans to self-correct "eligible inadvertent failures." These include when plan sponsors failed to adopt a written plan or when there is a significant error in a plan that was terminated.
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The IRS is particularly interested in learning about additional correction methods that should be used to correct Eligible Inadvertent Failures, including general principles of correction if a specific correction method is not specified and a description of common IRA failures and suggested correction methods for those failures. The IRS also want to know whether EPCRS should be expanded for both IRA custodians and IRA owners.
The guidance allows more errors made by plan sponsors to be reported using the Self-Correction Program rather than the Voluntary Correction Program. The guidance also allows sponsors to correct errors regardless of when the error was made as long as it is corrected within 18 months after the error was discovered.
"A plan sponsor of a SEP or SIMPLE IRA plan may self-correct certain insignificant operational failures in the SEP or SIMPLE IRA plan, even if the failures are discovered on examination, but may not self-correct a significant plan failure in the SEP or SIMPLE IRA plan under SCP," the agency said.
The IRS said that until the process is updated based on the SECURE 2.0 Act, a decision about whether actions taken by a plan sponsor demonstrate a specific commitment to implement the correction "will be made based on all the facts and circumstances."
Related: DOL: More time to comment on agency's new 401(k) self-correction program
"However, these actions must generally demonstrate that the plan sponsor is actively pursuing correction of the specific identified failure," the IRS said. "The mere completion of an annual compliance audit or adoption of a general statement of intent to correct failures when they are discovered are not actions demonstrating a specific commitment to implement the self-correction of an identified failure."
The guidance is helpful, American Retirement Association General Counsel Allison Wielobob said in a statement on the association's website.
"Self-correction programs at both IRS and DOL are very popular with plan sponsors," she said. "So, the expansion of EPCRS, the IRS program under SECURE 2.0, was definitely welcome. As almost any sponsor or TPA would tell you, hundreds of complex rules apply to running retirement plans, and mistakes occur."
Wielobob said that although the IRS is seeking comment on the guidance, the guidance explicitly states that it may be used now – a development that was helpful.
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