Non-amender Rules
Rev. 03/11/09; E-mail Alert 2009-4

Rev. Proc. 2008-50 contains some changes to the EPCRS non-amender rules. Effective January 1, 2009 (or if chosen by the employer as of September 2008), the IRS released Rev. Proc. 2008-50, updating the Employee Plans Compliance Resolution System (EPCRS).  EPCRS is an IRS program that allows for plan sponsors to proactively correct mistakes, ultimately protecting a plan’s tax-favored status.  Included in the update are important rules regarding the process of voluntarily correcting a failure to amend a qualified retirement plan in a timely manner. 

Prior to 2002, the IRS recognized only one type of non-amender failure, the failure to amend a plan to comply with law changes.  As of the GUST document, the IRS began snap-on amendments, with a good faith Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) amendment and a required minimum distribution final regulation snap-on amendment. Before we got to the EGTRRA document, there were more optional and required snap-on amendments and even the EGTRRA document has snap-on amendments.  With the establishment of remedial amendment cycles under Rev. Proc. 2005-66 and with updates under Rev. Proc. 2007-44, interim (previously referred to as required) and discretionary amendment rules were formally made part of the on-going restatement procedures.  Rev. Proc. 2008-50 added a category of failures to amend a plan document, consisting of discretionary amendments for law changes that are optional for plans to adopt. 

EPCRS 12.03 VCP for non-amender failures are subject to the normal fee schedule based on the number of participants in the plan for a restatement that was not done during the remedial amendment period. If the restatement is made during the first 12 months after the RAP has passed, the penalty is 50% of the amount on the schedule.

A certain amount of confusion exists about whether a particular amendment is interim or discretionary, therefore, the IRS decided to apply the same rules to both categories of amendment failures.  EPCRS gives an employer until the end of the remedial amendment cycle to correct good faith, discretionary, and interim non-amender failures.  Employers can voluntarily correct these failures under the Voluntary Correction Program (VCP), or as part of the Audit Closing Agreement Program (Audit CAP).  Under VCP, the correction fee is a flat $375 fee for a plan of any size.  An employer is permitted to correct these types of failures by amending its plan to reflect the actual operation of the plan, rather than having to change its plan operations to reflect what the plan says.

Under EPCRS, there are certain situations that will require employers to submit requests for determination letters in order to correct a failure.  Determination letter requests are not required when employers correct failures to adopt discretionary amendments. A determination letter application will be required if a plan failed to adopt a required amendment.  Failing to amend for GUST and failing to amend during a plan’s assigned remedial amendment cycle will also require the employer to submit a determination letter request when correcting the failures under VCP or Audit CAP.  When a determination letter request is filed, the plan document reflecting the latest Cumulative List must also be submitted.  This can be problematic for pre-approved plans since they are approved based on an earlier Cumulative List.