The Internal Revenue Service says it is streamlining its system of programs
for helping retirement plan sponsors and administrators retain the favorable
tax status of their plans.
The changes to these voluntary-correction programs will make it easier for
employee retirement plans to come into compliance with the law and to protect
the retirement benefits of participating employees, according to the IRS.
There are an estimated 40 million Americans employed by small businesses. Only
8 million of those workers are covered by a retirement plan.
“Retirement plan laws are complex and ever changing. We will do everything
we can to help businesses stay up-to-date and within the rules,” said Carol
Gold, director of IRS’s Employee Plans Division. “It’s easy for
retirement plans to fall into noncompliance on any number of technical or administrative
issues. Our priority is to offer plan sponsors and administrators a number of
avenues to correct the plans.”
In Revenue Procedure 2003-44, linked below, the IRS revises and simplifies
the Employee Plans Compliance Resolution System (EPCRS). EPCRS permits plan
sponsors to correct technical and administrative problems with their plans and
thereby retain the tax-favored status of their plans. Rev. Proc 2003-44 modifies
and supersedes Rev. Proc. 2002-47. (Because of its size, Rev. Proc. 2003-44
takes some time to load.)
There are three components of EPCRS:
- The Self-Correction Program (SCP), in which employers or plan administrators
identify and correct problems with their plans without the requirement to
notify the IRS.
- The Voluntary Correction Program (VCP), in which proposed corrections
are submitted for IRS approval; once approval is granted, employers have written,
reliable assurance that the IRS has approved their corrections.
- The Audit Closing Agreement Program (Audit CAP), under which plans
may be corrected with IRS approval while the plan is under audit.
In general, the changes made to Revenue Procedure 2002-47 include:
- expanding EPCRS to cover additional types of plans available to small businesses,
such as SIMPLE IRA Plans;
- adding correction methods and reporting instructions for plans of small
business (SEPs and SIMPLE IRA plans);
- providing sample formats for voluntary correction submissions;
- streamlining the VCP portion of EPCRS by consolidating all seven of the
prior subcategories of voluntary correction procedures into a single voluntary
correction program, thereby making it easier for businesses and plan administrators
to use this option to correct problems;
- providing a fixed fee schedule for all voluntary submissions, based on the
nature and complexity of the problem being brought into correction; and;
- simplifying the amount of plan information a plan sponsor is required to
include in a submission.
“A simplified system will provide an incentive for administrators to correct
problems promptly. This is a more user-friendly process,” said Joyce Kahn,
who directs IRS’s voluntary compliance program for employee retirement
plans. “Administrators can bring their plans into compliance and keep them
compliant. The changes will benefit everyone: employers and employees.”
Administrators have been able to make submissions for voluntary corrections
with IRS approval since 1992. Approximately 10,000 submissions for changes have
been made in the past decade. Beginning in 1997, administrators were permitted
to make self-corrections to plans without IRS approval.