What is the Employee Plans Compliance Resolution System (EPCRS)?

EPCRS is the overall name for the three IRS programs that correct operational and plan document errors affecting qualified plans, 403(b) plans, SEPs, and SIMPLE IRAs. EPCRS — which includes the Self-correction Program (SCP), the Voluntary Correction Program (VCP), and the Closing Agreement Program (Audit-CAP) — is updated on a recurring basis. The latest update can be found in Revenue Procedure 2008-50. An updated EPCRS is expected soon.

Can you tell me more about what VCP is about?
The VCP permits a Plan Sponsor that maintains a plan that experiences one or more Qualification Failures the ability to preserve the tax benefits of its retirement plan. If the plan sponsor discovers the problems prior to the plan (or the plan sponsor, if the plan sponsor is a tax-exempt organization) coming under an IRS Examination, it may bring such failures to the attention of the IRS through the Voluntary Correction Program (VCP). In such cases, the plan sponsor pays a fee to preserve the tax benefit associated with properly maintained retirement plans, but in virtually all cases, the fee, which is based on the size of the plan, is equal to only a small fraction of the amount of tax benefit preserved. The fee is also a fraction of the amount the IRS would sanction the plan sponsor if upon an IRS examination of the plan, these failures were discovered.

What happens if a defined contribution preapproved plan misses the April 30, 2010 deadline to restate? Plan sponsors of preapproved defined contribution plans (Master and Prototype and Volume Submitter Plans) will face non-amender penalties if they fail to restate their plan onto an EGTRRA plan document by the April 30, 2010 deadline. The IRS has stated there will be no extension of the April 30th deadline; therefore, it is critical to ensure all preapproved defined contribution plans are timely restated. 

In addition to April 30, 2010 being the deadline for EGTRRA restatements, it is also the cutoff date for existing preapproved EGTRRA defined contribution plans to file for a determination letter (DL) using Form 5307.  It is hoped that at a later date the IRS will address how future DL requests made using a Form 5307 may be made, especially for new plans. 

EPCRS non-amender correction
The IRS’s Employee Plans Compliance Resolution System (EPCRS) Rev. Proc. 2008-50 contains the appropriate correction method for remedying a non-amender failure.  Plan sponsors can voluntarily correct these failures under the Voluntary Correction Program (VCP). Such corrections will require a VCP filing.

Plan sponsors who do not timely restate their plan onto an EGTRRA document will face even greater IRS penalties if the failure is identified on audit, or during a determination letter request. The EPCRS non-amender fee is the normal VCP fee for correcting plan failures and is based on the number of participants in the plan. See the fee chart below.

Note that the fee below is reduced by 50% if the non-amender violation is remedied within the one-year period following the April 30, 2010 deadline (§12.03 of R.P. 2008-50).

What are the general principles underlying EPCRS?

EPCRS is based on the following general principles:

• Sponsors and other administrators of eligible plans should be encouraged to establish administrative practices and procedures that ensure that these plans are operated properly in accordance with the applicable requirements of the Code.
• Sponsors and other administrators of eligible plans should satisfy the applicable plan document requirements of the Code.
• Sponsors and other administrators should make voluntary and timely correction of any plan failures, whether involving discrimination in favor of highly compensated employees, plan operations, the terms of the plan document, or adoption of a plan by an ineligible employer. Timely and efficient correction protects participating employees by providing them with their expected retirement benefits, including favorable tax treatment.
• Voluntary compliance is promoted by providing for limited fees for voluntary corrections approved by the Service, thereby reducing employers' uncertainty regarding their potential tax liability and participants' potential tax liability.
• Fees and sanctions should be graduated in a series of steps so that there is always an incentive to correct promptly.
• Sanctions for plan failures identified on audit should be reasonable in light of the nature, extent, and severity of the violation.
• Administration of EPCRS should be consistent and uniform.
• Sponsors should be able to rely on the availability of EPCRS in taking corrective actions to maintain the tax-favored status of their plans.