Employee Plans Compliance Resolution System

Rev. Proc. 2016-51

PART I. INTRODUCTION TO EMPLOYEE PLANS COMPLIANCE RESOLUTION
SYSTEM
SECTION 1. PURPOSE AND OVERVIEW
.01 Purpose. This revenue procedure updates the comprehensive system of
correction programs for sponsors of retirement plans that are intended to satisfy the
requirements of § 401(a), 403(a), 403(b), 408(k), or 408(p) of the Internal Revenue
Code (the “Code”), but that have not met these requirements for a period of time. This
system, the Employee Plans Compliance Resolution System (“EPCRS”), permits Plan
Sponsors to correct these failures and thereby continue to provide their employees with
retirement benefits on a tax-favored basis. The components of EPCRS are the SelfCorrection
Program (“SCP”), the Voluntary Correction Program (“VCP”), and the Audit
Closing Agreement Program (“Audit CAP”).
.02 General principles underlying EPCRS. EPCRS is based on the following general
principles:
• Sponsors and other administrators of eligible plans should be encouraged to
establish administrative practices and procedures that ensure that these
plans are operated properly in accordance with the applicable requirements of
the Code.
• Sponsors and other administrators of eligible plans should satisfy the
applicable plan document requirements of the Code.
• Sponsors and other administrators should make voluntary and timely
correction of any plan failures, whether involving discrimination in favor of
highly compensated employees, plan operations, the terms of the plan
document, or adoption of a plan by an ineligible employer. Timely and
efficient correction protects participating employees by providing them with
their expected retirement benefits, including favorable tax treatment.
• Voluntary compliance is promoted by establishing limited fees for voluntary
corrections approved by the Internal Revenue Service (“IRS”), thereby
reducing employers’ uncertainty regarding their potential tax liability and
participants’ potential tax liability.
• Fees and sanctions should be graduated in a series of steps so that there is
always an incentive to correct promptly.
• Sanctions for plan failures identified on audit should be reasonable in light of
the nature, extent, and severity of the violation.
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• Administration of EPCRS should be consistent and uniform.
• Sponsors should be able to rely on the availability of EPCRS in taking
corrective actions to maintain the tax-favored status of their plans.
.03 Overview. EPCRS includes the following basic elements:
• Self-correction (SCP). A Plan Sponsor that has established compliance
practices and procedures may, at any time without paying any fee or
sanction, correct insignificant Operational Failures under a Qualified Plan, a
403(b) Plan, a SEP, or a SIMPLE IRA Plan. For a SEP or SIMPLE IRA Plan,
however, SCP is available only if the SEP or SIMPLE IRA Plan is established
and maintained on a document approved by the IRS. In the case of a
Qualified Plan or 403(b) Plan that satisfies the requirements of sections 4.03
and 4.04, the Plan Sponsor generally may correct even significant
Operational Failures without payment of any fee or sanction if the correction
is made within the time specified in section 9.02.
• Voluntary correction with IRS approval (VCP). A Plan Sponsor, at any time
before audit, may pay a limited fee and receive the IRS’s approval for
correction of a Qualified Plan, 403(b) Plan, SEP, or SIMPLE IRA Plan failure.
Under VCP, there are special procedures for Anonymous Submissions and
Group Submissions.
• Correction on audit (Audit CAP). If a failure (other than a failure corrected
through SCP or VCP) is identified on audit, the Plan Sponsor may correct the
failure and pay a sanction. The sanction imposed will bear a reasonable
relationship to the nature, extent, and severity of the failure, taking into
account the extent to which correction occurred before audit.

 

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