IRS Issues Interim Guidance on SECURE 2.0 Expansion of EPCRS
May 25, 2023
The IRS on May 25, 2023 released guidance on expansion of the Employee Plans Compliance Resolution System (EPCRS) under Section 305 of SECURE 2.0.
Many of the components included were requested by MissionSquare and others through our trade partner SPARK in our letter to Treasury.
EPCRS provides a system for plan sponsors to correct plan errors and is currently set forth in Revenue Procedure 2021-30. One component of EPCRS is the Self-Correction Program, which permits the correction of plan errors without making a submission to the IRS or the payment of fees. In the case of significant operational failures and plan document failures, the SCP generally requires corrections to be completed or substantially completed by the last day of the third plan year following the plan year in which the failure occurred. Plan errors that are not eligible for the SCP may generally be corrected through EPCRS’s Voluntary Correction Program or Audit Closing Agreement Program, which require a submission to the IRS and/or the payment of a fee.
Taking effect immediately, Notice 2023-43 provides interim support until Rev. Proc. 2021-30 is updated to reflect Section 305 of SECURE 2.0.
The guidance expands the EPCRS to allow any qualified plan, 403(b) plan, SEP, or SIMPLE IRA to self-correct inadvertent tax compliance failures through the EPCRS without a submission to the IRS. (While 457(b) plans are not subject to EPCRS requirements, the IRS encourages such plans to look to EPCRS for correction guidance.)
According to the guidance, a plan sponsor may self-correct an eligible inadvertent failure before Rev. Proc. 2021-30 is updated if certain conditions are satisfied and certain exceptions do not apply. Among other changes, Section 305 also directs the Treasury to expand EPCRS to allow IRA custodians to address inadvertent failures with respect to an IRA.
The eligibility requirements for a plan sponsor to be able to self-correct an eligible inadvertent failure are:
- The plan sponsor must have established practices and procedures reasonably designed to promote and facilitate overall compliance with applicable code requirements.
- The plan sponsor must apply the correction principles and rules of general applicability set forth in Section 6 of EPCRS.
- The plan sponsor has the option to self-correct using a correction method set forth in Appendix A or B of EPCRS.
- A plan sponsor may not use a correction method that is prohibited under EPCRS.
Types of failures that may not be self-corrected are:
- A failure to initially adopt a written plan.
- A significant failure in a terminated plan.
- An operational failure that is corrected by a plan amendment that conforms the terms of the plan to the plan’s prior operations in a manner that is less favorable for a participant than the original terms of the plan.
For more information on SECURE 2.0 or other retirement policy issues, contact Erica McFarquhar, Deputy General Counsel, or Irica Solomon, Head of Government Affairs.