On Friday, the Internal Revenue Service (IRS) released Rev. Proc. 2021-30, and with it a series of updates that plan sponsors and those working to correct plan failures, will find of interest, including two new benefit overpayment correction methods.
The IRS noted that the two new overpayment correction methods are designed to 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 to be recouped under certain circumstances.
In addition—and of note—the revenue procedure eliminates the VCP anonymous submission procedure and adds an anonymous, no-fee, VCP pre-submission conference procedure. The revenue procedure also expands correction by plan amendment under SCP, extends the end of the SCP correction period for significant failures by one year, and extends the sunset of the safe harbor correction method for certain missed elective deferrals by three years.
As a reminder, the IRS Employee Plans Compliance Resolution System (EPCRS) permits any plan sponsor of a retirement plan (including SEP and SIMPLE IRA plans) to correct plan failures. EPCRS offers three correction programs:
- Self-Correction Program (SCP)—correct certain plan failures without contacting the IRS or paying a user fee
- Voluntary Correction Program (VCP)—correct failures not eligible for SCP and to get the approval of the IRS that the failures were properly corrected
- Audit CAP—resolve failures discovered during an IRS audit that can’t be corrected using SCP
The IRS notes that the 140-page revenue procedure modifies and supersedes Rev. Proc. 2019-19, 2019-19 I.R.B. 1086, the most recent prior consolidated statement of the correction programs under EPCRS. Despite its length, this update was described by the IRS as a “limited update” that was published primarily to:
(1) expand guidance on the recoupment of overpayments;
(2) eliminate the anonymous submission procedure under VCP, effective Jan. 1, 2022;
(3) add an anonymous, no-fee, VCP pre-submission conference procedure, effective Jan. 1, 2022;
(4) extend the end of the SCP correction period for significant failures by one year (which has the result of also extending the safe harbor correction method for Employee Elective Deferral Failures lasting more than three months but not beyond the extended SCP correction period for significant failures);
(5) expand the ability of a Plan Sponsor to correct an Operational Failure under SCP by plan amendment; and
(6) extend by three years the sunset of the safe harbor correction method available for certain Employee Elective Deferral Failures associated with missed elective deferrals for eligible employees who are subject to an automatic contribution feature in a Section 401(k) plan or Section 403(b) plan (from Dec. 31, 2020, to Dec. 31, 2023).
Significant Changes, Revisions
As noted above, the IRS made what it called “significant changes and revisions” to EPCRS in Revenue Procedure 2021-30 which it said “may be beneficial to plan sponsors, participants and the retirement plan community,” including:
Overpayment correction options: Expanded correction principles to allow plan sponsors to fix operational failures when plan participants or beneficiaries receive payments from defined benefit plans that exceed what is permitted by the terms of the plan, effective July 16, 2021. The IRS says the new principles reduce 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.
Expansion of Self Correction for Significant Operational Failures: Extends the correction period of significant operational failures from two to three years, effective July 16, 2021.
Expansion of Self Correction for Retroactive Plan Amendments: Makes 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, effective July 16, 2021.
Anonymous VCP submissions: Effective Jan. 1, 2022, Rev. Proc. 2021-30 eliminates anonymous submissions under VCP.
Anonymous Pre-Submission Conferences: Effective Jan. 1, 2022, 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. Following the pre-submission conference, if the plan sponsor submits a VCP request, it can no longer be anonymous.
Extension of Automatic Enrollment Failures: 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.
Increased Threshold for De Minimis Correction Amounts: Increase from $100 to $250 the threshold for certain de minimis amounts for which a plan sponsor is not required to implement correction.
The IRS says that it is expected that the Treasury Department and the IRS will continue to update the EPCRS revenue procedure, in whole or in part, from time to time, including further improvements to EPCRS based on comments received—and that, accordingly, the Treasury Department and the IRS “continue to invite further comments on how to improve EPCRS.”