Important Updates to the IRS Employee Benefit Plans Correction Programs

July 23, 2021

The IRS just released Revenue. Procedure (Rev. Proc.) 2021-30 which made some significant changes to its Employee Plans Compliance Resolution System (EPCRS). Notably, there are two new correction methods for benefit overpayment errors that encourage employers to avoid seeking recoupment of benefit overpayments made to participants and beneficiaries, either by not requiring correction if the plan satisfies a specified funding level, or by limiting the amount required to be recouped under certain circumstances. The new guidance reduces the need to seek repayment from participants or beneficiaries who received overpayments, and in some cases, do not require the plan sponsor to reimburse the plan for overpayments to participants. It increased threshold for de minimis correction amounts to $250 (from $100) for which a plan sponsor is not required to implement a correction.

Also, some other notable provisions of Rev. Proc 2021-30 include:

  • Elimination of Anonymous VCP Submissions: Effective January 1, 2022, the VCP anonymous submission procedure is eliminated and an anonymous, no-fee, VCP pre-submission conference procedure will be added in which the IRS will permit plan sponsors or their representatives to make an anonymous written request for a pre-submission conference to discuss a potential VCP submission at no cost to the plan sponsor. However, following the pre-submission conference, if the plan sponsor submits a VCP request, it can no longer be anonymous.
  • SCP Expanded for Retroactive Amendments: Effective July 16, 2021, the self-correction program (SCP) for retroactive plan amendments is expanded, making it easier to use retroactive plan amendments to correct operational failures by removing the requirement that all participants in the plan benefit by the retroactive amendment.
  • SCP Time Frame For Significant Failures Extended: Effective July 16, 2021, the time frame for SCP corrections is extended by one year (increase from two to three years for significant failures).
  • Extension of Automatic Enrollment Failures—Rev. Proc. 2021-30 extends the sunset of the safe harbor correction method to correct missed elective deferrals for eligible employees subject to an automatic contribution feature in Section 401(k) or 403(b) plans by three years, to failures that begin on or before December 31, 2023 (previously December 31, 2020).

The bottom line is that all of these changes generally are making it easier/ encouraging employers to make corrections to their benefit plans that may have experienced any type of error, especially by expanding the errors eligible for self-correction as opposed to the more onerous voluntary compliance program (VCP) application.

The IRS just released Revenue. Procedure (Rev. Proc.) 2021-30 which made some significant changes to its Employee Plans Compliance Resolution System (EPCRS). Notably, there are two new correction methods for benefit overpayment errors that encourage employers to avoid seeking recoupment of benefit overpayments made to participants and beneficiaries, either by not requiring correction if the plan satisfies a specified funding level, or by limiting the amount required to be recouped under certain circumstances. The new guidance reduces the need to seek repayment from participants or beneficiaries who received overpayments, and in some cases, do not require the plan sponsor to reimburse the plan for overpayments to participants. It increased threshold for de minimis correction amounts to $250 (from $100) for which a plan sponsor is not required to implement a correction.

Also, some other notable provisions of Rev. Proc 2021-30 include:

  • Elimination of Anonymous VCP Submissions: Effective January 1, 2022, the VCP anonymous submission procedure is eliminated and an anonymous, no-fee, VCP pre-submission conference procedure will be added in which the IRS will permit plan sponsors or their representatives to make an anonymous written request for a pre-submission conference to discuss a potential VCP submission at no cost to the plan sponsor. However, following the pre-submission conference, if the plan sponsor submits a VCP request, it can no longer be anonymous.
  • SCP Expanded for Retroactive Amendments: Effective July 16, 2021, the self-correction program (SCP) for retroactive plan amendments is expanded, making it easier to use retroactive plan amendments to correct operational failures by removing the requirement that all participants in the plan benefit by the retroactive amendment.
  • SCP Time Frame For Significant Failures Extended: Effective July 16, 2021, the time frame for SCP corrections is extended by one year (increase from two to three years for significant failures).
  • Extension of Automatic Enrollment Failures—Rev. Proc. 2021-30 extends the sunset of the safe harbor correction method to correct missed elective deferrals for eligible employees subject to an automatic contribution feature in Section 401(k) or 403(b) plans by three years, to failures that begin on or before December 31, 2023 (previously December 31, 2020).

The bottom line is that all of these changes generally are making it easier/ encouraging employers to make corrections to their benefit plans that may have experienced any type of error, especially by expanding the errors eligible for self-correction as opposed to the more onerous voluntary compliance program (VCP) application.

For more information regarding the correction of any type of employee benefit plan errors contact Matthew Whitehorn, Esq. or Stephanie Vogel, Esq.

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