Retirement Plan Self-Correction Updates

On April 19, 2019, the IRS provided new correction alternatives for qualified plans by updating its Employee Plans Compliance Resolution System (EPCRS) in Revenue Procedure 2019-19. The self-correction program (SCP) was expanded to include corrections that were previously only available under the voluntary correction program. The new options for SCP include corrections for certain loan failures, operational failures corrected through a retroactive amendment, and certain plan document failures. By correcting through SCP, the employer avoids the IRS user fees required to obtain approval. See a summary of the changes below.

Plan Loans. Previously, there weren’t many self-correction options for plan loan failures. Now, more failures can be self-corrected. The types of loan errors that can be addressed through the SCP include:

  • A defaulted loan due to missed payments (if the five-year maximum term has not expired)
  • Making a loan available when the plan does not permit loans (this was previously available)
  • Allowing a participant to take more loans than permitted by its loan policy

Operational Failures.  Sometimes plan mistakes occur because the plan isn’t operating in accordance with the plan document. These mistakes can now be self-corrected by retroactively amending the plan document to match the operations if:

  • The correction results in an increased benefit, right, or feature
  • The increase is available to all eligible employees
  • Providing the benefit is consistent with the EPCRS’s general correction principles and is permitted under the Code

Plan Document Failures. A plan document failure occurs when a plan sponsor does not timely amend or restate the plan as required. For example, if the plan sponsor failed to timely adopt an IRS-required interim amendment, this can now be self-corrected. These are the requirements for the error to be self-corrected:

  • The plan is subject to a favorable IRS approval letter
  • The correction is made by the end of the second plan year following the failure, as plan document failures are generally considered significant
  • The error is not a failure to timely adopt the plan’s initial document

These changes will improve plan compliance and reduce employer costs, allowing self-correction without paying an onerous IRS user fee.  Find more information here.