olume umber journal of sp - miller & chevalier...2 / journal of pension planning &...

VOLUME 39, NUMBER 2

JOURNAL ofPENSIONPLANNING &COMPLIANCEEditor-in-Chief: Bruce J. McNeil, Esq.

SUMMER 2013

JPPCA New Direction for Voluntary Compliance: A Commentary on the Significance of Changes in Rev. Proc. 2013-12

Elizabeth F. Drake *

Elizabeth Drake is a Member in Miller & Chevalier’s employee benefits and executive compensation practice. She regularly counsels clients on a variety of complex issues related to their retirement and health and welfare benefit programs. She may be reached at [email protected].

* Ms. Drake wishes to thank her colleague, Eva McComas, for sharing her expertise and valuable insights. She also wishes to thank her colleague, Stephen Michael Chittenden for, his valuable assistance.

JPPC_Summer13_Drake.indd 1 12/18/2013 10:28:00 PM

2 / JOURNAL OF PENSION PLANNING & COMPLIANCE

On December 31, 2012, the Internal Revenue Service (“IRS”) released a long-awaited update to its Employee Plans Compliance Resolution Program. This article provides an overview of the significant changes to the procedures

for VCP submission. This article also summarizes the substantive changes to the prior version of EPCRS. In addition, we start with a brief description of the different correction programs under ERCRS, and we finish with a prediction of what to expect from the IRS.

BACKGROUND

By now, most benefits practitioners and retirement plan sponsors likely have had some experience with the retirement plan correction program sponsored by the IRS. The program had its origins in the 1990’s with programs like the Closing Agreements Program and the Administrative Policy Regarding Self-Correction to provide an alter-native to the harsh effects of plan disqualification, particularly where the qualification failure was relatively small. Over the years, the IRS’s correction program evolved into the more formal Employee Plans Compliance Resolution Program (“EPCRS”).

The most recent update to EPCRS was released on December 31, 2012 in Revenue Procedure 2013-12. 1 At first glance, the changes in Rev. Proc. 2013-12 seem to be a helpful refinement of the program but little in the way of groundbreaking changes. However, further reflection on the changes related to VCP submission procedures and compliance fee schedules, along with the fine-tuning of pre-approved correction methods, suggest that the program is headed in a direction similar to the current determination letter program for qualified plan documents, where the processing of submissions, and to some extent the review, is somewhat more mechanical and less flexible.

On the one hand, in many situations, the changes to EPCRS should make it easier to self-correct or correct with IRS approval those failures that are, in whole or part, the same as those described in EPCRS, as long as the correction method mirrors one described in Appendix A or Appendix B of the Revenue Procedure. On the other hand, given the IRS attention to refining pre-approved corrections, plan sponsors may face a bigger hurdle when asking for IRS approval of a correction strategy other than one described in the EPCRS.

FIND, FIX, AND AVOID

“Find, Fix, and Avoid” summarizes the IRS’s approach to compliance. 2 Compliance failures have become a fact of life in today’s


A NEW DIRECTION FOR VOLUNTARY COMPLIANCE / 3

world, inasmuch as the complexity associated with maintaining tax-favored retirement plans seems to increase year after year, whether from legislative changes, regulatory guidance, or business decisions designed to change existing benefit programs. Fortunately, the IRS recognizes the difficulty of maintaining a tax-favored retirement plan that oper-ates without error. Through EPCRS, the IRS has developed procedures through which it looks favorably on plan sponsors that monitor their plans, take reasonable and appropriate corrective actions when mistakes are discovered, and maintain practices and procedures designed to avoid compliance failures.

Finding Failures At the outset, it should be remembered that compliance failures

involving the form or operation of a qualified retirement plan can result in disqualification if discovered by the IRS. 3 The IRS may discover failures in the form of a plan document when the plan is submitted for an IRS determination letter. The IRS also may to discover failures in a plan’s operation during an audit of the plan, or in some cases, an audit of the plan sponsor. 4

The IRS is not the only policeman on patrol. Other parties may play this role, particularly given that EPCRS and IRS outreach has raised the level of awareness about common plan mistakes, and the availability of voluntary correction opportunities, such that EPCRS could be viewed as a compliance guide. As a result, plan sponsors may engage in self-audits or periodic compliance checks, and a plan spon-sor’s advisors or vendors may raise compliance issues. For example, legal counsel may discover plan document failures during the prepara-tion of the plan’s determination letter filing (which might be viewed as a mini-audit to ensure, at a minimum, that all required amendments have been timely adopted). Further, in corporate mergers and acquisitions, compliance issues may be discovered during benefits due diligence or integration of the acquired company’s plans.

In addition to the plan sponsor and its counsel, the accountants who perform the annual plan audit typically focus on compliance questions. Management may be asked to make representations to the accountants that there are no known qualification issues that have not been corrected under EPCRS, or the accountants may identify potential errors and require an explanation or correction. Moreover, once a plan’s recordkeepers become aware of an issue, they too may demand correction in a manner that satisfies EPCRS. 5 Finally, even participants may play a role, for example, when they bring potential benefit calculation or payment errors to the attention of the plan sponsor.



Fixing Failures Through EPCRS, the IRS encourages plan sponsors to fix com-

pliance failures either before or after they are discovered by the IRS. EPCRS consists of three component programs: the Self-Correction Program (“SCP”), the Voluntary Correction Program (“VCP”), and the Audit Closing Agreement Program (“Audit CAP”). These programs are summarized below.

Overview of Correction Programs Self-Correction Program. SCP is available only for operational

failures ( i.e. , a failure to follow the plan’s terms), and allows plan spon-sors to self-correct without seeking approval from the IRS or payment of a compliance fee. 6 While insignificant failures can be corrected at any time, the correction of significant failures generally must be sub-stantially completed by the end of the second plan year after the plan year in which the failure occurred. 7 In addition, to correct significant failures through SCP, the plan must have a current favorable deter-mination letter. 8 Finally, the plan administrator must have established procedures reasonably designed to promote and facilitate compliance with applicable Internal Revenue Code requirements. 9 Once a plan is under examination (described below), SCP is available only in limited circumstances. 10

Voluntary Compliance Program. Unlike SCP, VCP may be used to correct all types of qualification failures. 11 Correction through VCP is subject to review and approval by the IRS and the payment of a compliance fee that is determined by either the number of participants or the nature of the failure. 12 Plan sponsors generally must prepare a detailed explanation of the failure and the correction methodology and a description of the procedures the plan sponsor has adopted to prevent the error from occurring again. 13 Streamlined submissions may be used for certain failures, including nonamender failures, plan loan failures, and failures to pay required minimum distributions. 14 Once the plan sponsor and the IRS agree on a correction, the IRS issues a compliance statement and requires full correction within 150 days. 15

VCP is not available where the plan is under examination. 16 A plan is generally considered to be “under examination” if it is undergoing an Employee Plans examination or, in some cases, if a related plan is undergoing the examination. 17 A plan is also considered under exami-nation if the plan sponsor has submitted it for a determination letter and has been notified by the IRS of potential failures. 18

Audit Closing Agreement Program. Audit CAP allows plan spon-sors to correct failures that are discovered by the IRS on examination, subject to the payment of a sanction. 19 The sanction is a negotiated



percentage of the “maximum penalty amount,” which is an estimate of the total tax, interest and penalties due from the plan sponsor, the trust and plan participants if the plan were to have been disqualified on account of the failure. 20 Correction must be made for all affected years, even though the sanction is based only on the open tax years. 21 The IRS will not issue a Closing Agreement until correction has been completed. 22

In general, the sanction under Audit CAP is likely to significantly exceed the compliance fee payable under VCP. The IRS considers fac-tors such as the steps the plan sponsors has taken to identify and avoid failures, the number of rank-and-file workers affected, and the reason for the failure ( e.g. , a ministerial error). 23 Audit CAP also has fixed compliance fees for nonamender failures discovered during the deter-mination letter process. 24

Changes in Rev. Proc. 2013-12: Beyond the Surface Among the changes in Rev. Proc. 2013-12, the most significant are

the new submission requirements for VCP filings. The new submission requirements have the standardized look and feel of the determination letter program.

New Filing Forms. Plan sponsors must now submit IRS Form 8950, Application for Voluntary Correction Program (VCP), which contains the plan-related information and a submission checklist sim-ilar to Appendix C from Rev. Proc. 2008-50. 25 The Form 8950 has the look and feel of the Form 5300 series for determination letter applica-tions. Plan sponsors also must complete Form 8951, Compliance Fee for Application for Voluntary Correction Program, which is very sim-ilar to the Form 8717 user-fee form determination letters. 26 Moreover, pursuant to Rev. Proc. 2013-12, VCP applications now must be sent to the same IRS processing center in Covington, KY that processes deter-mination letter applications. 27 Rev. Proc. 2013-12 makes it clear that VCP submissions and related determination letter applications will be processed separately, but one might wonder whether the more “routine” VCP submissions will be reviewed by the same personnel group respon-sible for reviewing determination letter applications. 28

The new Form 8951 serves as a useful guide to the array of compli-ance fees applicable to VCP filings. In general, the VCP compliance fee is based on the number of plan participants unless the type of failure qualifies for a reduced compliance fee. The participant-based fee ranges from $750 for plans with 20 or fewer participants to $25,000 for plans with more than 10,000 participants. 29 The “type of failure” reduced fees include the $375 fee for nonamender submissions, $500 for Section 401(a)(9) failures, $500 for the failure to timely adopt an amendment



upon which a favorable determination letter is conditioned, as long as the amendment is adopted within nine months of the determination letter (new in Rev. Proc. 2013-12), and 50 percent fee reductions for non amender failures submitted within one year after the applicable remedial amendment period.

Related Determination Letter Applications. Rev. Proc. 2013-12 clarifies the circumstances in which it determination letter applications are required or permitted as part of a VCP submission or under Audit CAP. In general, a determination letter application must be submitted if the plan sponsor is adopting a retroactive plan amendment to correct an operational failure during an “on-cycle” year or to correct an plan amendment failure (regardless of whether the amendment is adopted during an on-cycle or off-cycle year). 30 However, no determination let-ter application is required if the failure to timely adopt a compliance-related amendment ( e.g. , an interim amendment or an amendment to implement an optional change in law) until the next on-cycle year. Nor is a determination letter application required if the amendment utilizes an IRS model amendment or language from a pre-approved prototype or volume submitter document. 31 If an operational failure is corrected through SCP using a retroactive amendment (to the extent SCP permits such amendment), the plan sponsor must submit a determination letter application during the next on-cycle year and identify the amendment as a corrective amendment under SCP. 32

Other Changes and Clarifications. While the foregoing changes to the VCP submission process represent the most significant change in EPCRS, Rev. Proc. 2013-12 also contains refinements to substan-tive correction principles and an expanded program for Section 403(b) plans.

• All Plans—Delivery of Small Benefits. Under EPCRS, if the total corrective distribution due to a participant or beneficiary is $75 or less, the plan sponsor is not required to make the distribution if the cost of doing so would exceed the amount of the distribution. Rev. Proc. 2013-12 explicitly states that this rule does not apply in the case of a corrective contribution to a participant that continues to have an account under the plan. 33

• All Plans—Locating Lost Participants. Under EPCRS, the plan sponsor must take reasonable actions to find participants and beneficiaries who may be due additional benefits but who have not been located after a mailing to their last known address. Rev. Proc. 2013-12 reflects that as of August 31, 2012, the IRS letter forward-ing program is no longer available for locating participants. 34 In



recognition of this change, Rev. Proc. 2013-12 provides a limited extension of time to find missing participants for sponsors who have already utilized the letter forwarding program. 35 Rev. Proc. 2013-12 also provides more detail as to what the IRS views as acceptable methods for locating participants. 36

• Defined Benefit Plans—Corrective Distributions. Under EPCRS, a corrective distribution should be increased to take into account the delay in payment. Rev. Proc. 2013-12 clarifies that the increase should be determined in accordance with the plan’s provisions for actuarial equivalence in effect at the time the distribution should have been made. 37

• Defined Benefit Plans—Impact of Section 436 Funding-Based Restrictions on Correction. Rev. Proc. 2013-12 includes a new sec-tion that addresses the application of Section 436 funding-based restrictions. If a benefit payment or plan amendment violates Section 436, the plan sponsors can make a corrective contribu-tion or, in the case of an overpayment, use the general procedures for recouping overpayments. 38 Furthermore, if the plan sponsor wants to make a corrective distribution that includes a prohibited payment or corrective amendment at a time when the Section 436 restrictions would otherwise apply, the plan sponsor must make a corrective contribution to the plan. 39 For example, if a plan corrects the failure to obtain spousal consent by providing the spouse a lump sum payment that would otherwise be pro-hibited by Section 436, the plan sponsor must make a corrective contribution. 40

• Defined Contribution Plans—Excess Annual Additions. Rev. Proc. 2013-12 now states that a plan providing for elective deferrals and nonelective contributions is not treated as failing to have estab-lished practices and procedures otherwise required to use EPCRS if the excess annual additions are regularly corrected by returning the elective deferrals within 2-½ months after the close of the year. 41

• Defined Contribution Plans—Correction of Certain Overpayments. Under EPCRS, an overpayment from a defined contribution plan is corrected by taking reasonable steps to recover the overpayment, adjusted for earnings at the plan’s earnings rate, from the partici-pant or beneficiary. Any shortfall in the plan’s recovery must be contributed by the plan sponsor or other person. Rev. Proc. 2013-12 provides that a limited exception to the requirement to fund the



shortfall where the failure was solely one of timing— i.e. , payment made in absence of a distributable event. 42

• 401(k) Plans—Use of Forfeitures to Make Corrective Contributions. The general correction principles of EPCRS state that corrective allocations may be funded by forfeitures, if the plan so permits. 43 Rev. Proc. 2013-12 now states explicitly that any amounts used to correct a failed ADP, ACP or multiple use test must satisfy the def-inition of a qualified nonelective contribution under Treas. Reg. Section 1.401(k)-6. 44 The definition provides that such nonelective contributions must be 100 percent vested and subject to the same distribution limitations as elective deferrals at the time they are contributed to the plan. 45 Accordingly, forfeitures may not be used to fund contributions used to correct such nondiscrimination test-ing failures. Similar rules apply to contributions used to correct the improper exclusion of employees who were prevented from making elective deferrals under a plan. 46 But other corrective con-tributions, such as those used to provide matching contributions to employees who were improperly excluded from a nonsafe harbor 401(k) plan, may be funded by forfeitures if the plan so permits. 47

• 401(k) Plans—Pre-Approved Corrections for Safe Harbor Plans. EPCRS sets forth preapproved corrections for the improper exclu-sion of employees from a safe harbor 401(k) plan. The correction method is based on the type of safe harbor plan and whether the plan includes an automatic increase feature. 48

• Section 403(b) Plans—Expansion of EPCRS Coverage . Rev. Proc. 2013-12 expands EPCRS so that failures in Section 403(b) plans may be corrected through SCP, VCP, and Audit CAP in a man-ner consistent with Section 401(a) tax-qualified plans, including correction of plan document failures under VCP. 49 Rev. Proc. 2013-12 also allows Section 403(b) plan sponsors to make a VCP submission to correct the failure to adopt a written plan docu-ment by December 31, 2009, as required by IRS Notice 2009-3. 50 If the submission only involves a failure to timely adopt a written plan document in accordance with the final regulations under Section 403(b) and Notice 2009-3, and the submission is sent to the IRS by December 31, 2013, the compliance fee under Section 12.02(1) is reduced by 50 percent. 51

• Section 457(b) Plans—Eligibility for EPCRS. The IRS accepts submissions relating to 457(b) plans on a provisional basis outside



of EPCRS. Generally, correction is limited to plans sponsored by eligible governmental entities. Under Rev. Proc. 2013-12, the IRS may also consider submissions sponsored by tax-exempt entities, for example, where the plan was erroneously established for non-highly compensated employees and has been operated in a manner consistent with a qualified retirement plan. 52

• All Plans—Penalty of Perjury Statement for Anonymous VCP Submissions . Anonymous VCP submissions must include a new penalty of perjury statement. 53 The statement must assert that the representative making the anonymous submission satisfies the requirements for a power of attorney. 54

IRS Request for Comments on Other Corrections In Rev. Proc. 2013-12, the IRS requests comments regarding meth-

ods to correct the failure to implement automatic enrollment (including automatic escalation) provisions in a 401(k) plan or 403(b) plan and methods to correct the failure to provide the required notices for safe harbor 401(k) plans. 55 The IRS has already proposed the following cor-rection methods, albeit informally (on its Web site), which should be of interest to plan sponsors and may be an indication of what lies ahead.

• Failure to Implement Automatic Enrollment Provision. The IRS indicates that the failure to implement an automatic enrollment provision can occur in one of two ways: the failure to provide an employee, such as a new hire, information about automatic enroll-ment, or the failure to commence elective deferrals on behalf of an employee who, by default, should have been automatically enrolled. 56 Correction of the failure to provide the new hire infor-mation about automatic enrollment requires the plan sponsor to make a QNEC equal to 50 percent of the ADP for nonhighly compensated employees. Correction of the failure to automatic-ally enroll an employee requires the plan sponsor to make a QNEC equal to 50 percent of the automatic deferral percentage ( e.g. , 3 percent).

• Failure to Provide Safe Harbor 401(k) Plan Notice. The IRS pro-vides two situations in which it failed to provide employees the required notice for safe harbor 401(k) plans. 57 In one situation, the employer failed to provide the annual notice employees who were already participating, but employees were told the next year’s matching contribution formula and told how to change their con-tribution elections. In this case, correction simply involves revising



administrative procedures to ensure the annual notice is timely provided. No corrective contribution is required. In the other situ-ation, a new hire was never provided the safe harbor notice and she was not informed that she could make contributions to the plan. In this case, the plan sponsor makes corrective contribution equal to 50 percent of the missed deferral opportunity, which is the greater of 3 percent or the largest deferral for which the employer matches 100 percent.

In Rev. Proc. 2013-12, the IRS also requests comments on issues related to designated Roth contributions. Of particular interest to the IRS is what to do if an employee elected Roth contributions but contri-butions were instead made on a pre-tax basis. The IRS seeks comments as to whether the pre-tax contributions should be transferred to a Roth account and included in taxable income in the year of the transfer or a tax gross-up payment by the employer, as opposed to correcting on a retroactive basis with a corrected W-2 (and amended return) for the year of the failure. 58 Also of interest to the IRS is what to do if a plan fails to notify an employee of the right to make Roth contributions. Should there be some type of additional corrective contribution to reflect the possibility that the employee might have elected to make Roth contributions?

Avoiding Failures EPCRS makes clear that every plan sponsor should have in

place policies and procedures that are designed to avoid qualification failures. 59 Established policies and procedures are a requirement for SCP. And it is inevitably more expensive to fix a mistake, particularly when it involves decisions about the appropriate correction and pay-ment of a compliance fee, than it would have been to operate the plan correctly. Moreover, when a qualification failure is corrected through VCP or Audit CAP, the plan sponsor has little leverage if the IRS dis-agrees with the correction method. The decision to pursue voluntary correction, the presentation of the issue and the method of correction must be given careful thought.

Practical Tips for Avoiding Failures Based on our experience, we believe that the following practical

tips can go a long way in avoiding failures:

• Ensure that plan amendments are timely and properly adopted. During the determination letter process, the IRS is likely to take issue, for example, with a board resolution that generally approves



certain compliance amendments if there is no evidence that the specific plan language was approved by the board, or adopted by an authorized person in a signed and dated plan amendment, by the applicable amendment deadline. The failure to timely and properly adopt these amendments will likely result in the imposi-tion of monetary “non-amender” fees or sanctions on the plan sponsor.

• Ensure that the plan’s administrative documents, such as admin-istrative manuals maintained by third-party recordkeepers, are consistent with the plan document.

• Ensure that the plan document is updated to address issues that arise in day-to-day plan administration. For example, a question may arise about whether a specific type of pay should be included in plan-eligible compensation. The company employees who work with the recordkeeper decide that it should be excluded and the recordkeeper updates the administrative documents and adminis-ters the plan accordingly. Several years later, it is discovered that because the compensation definition was never changed exclude this type of pay, benefits were understated for a large group of employees.

• Ensure that plan amendments are immediately provided to the recordkeeper. Although the plan sponsor may have informally notified the recordkeeper of a change, the recordkeeper may not bear responsibility under the services agreement if it did not administer the plan in accordance with the amendment. An impor-tant follow-up to this is to ask the recordkeeper to provide any resulting updates in its administrative documents for review.

• Require recordkeepers to provide notice of any changes to the plan’s administrative documents and conduct periodic reviews of those documents to ensure that they comport with the plan document.

These seemingly easy steps can go a long way in avoiding adminis-trative errors that could be quite costly and time consuming to correct.

CONCLUSION

In our view, the changes to EPCRS, reflected in Rev. Proc. 2013-12, are more significant than one may first think. The procedural changes



to the VCP submission process suggest that the IRS has a need to bet-ter manage the volume and handling of these submissions. Moreover, while the additional clarity and refinement in the program are welcome, the trade-off could be less flexibility, or at least a bigger hurdle, where a plan sponsor wishes to correct in a manner that deviates from the pre-approved corrections set forth in the Revenue Procedure (or, perhaps, on the IRS Web site, regardless of whether such guidance is binding). Accordingly, more than ever, plan sponsors should place an emphasis on avoiding compliance failures. And if a failure is discovered, plan sponsors should give careful thought to the correction in light of the IRS’s views.

NOTES

1. The requirements of Rev. Proc. 2013-12 are generally effective April 1, 2013. However, plan

sponsors are permitted to apply its provisions beginning December 31, 2012, as long as they

also comply with the new Voluntary Correction Program procedures, if applicable, discussed

in this article. Rev. Proc. 2013-12 § 16, I.R.B. 2013-4.

2. See Correcting Plan Errors , I.R.S., http://www.irs.gov/Retirement-Plans/Correcting-Plan-Errors

(last updated, Feb. 25, 2013).

3. Plan sponsors and benefit practitioners may believe that the threat of disqualification is an

empty one, but it continues to be a reality. See , e.g. , Churchill, Ltd. v. Comm’r, T.C. Memo

2012-300 (Oct. 25, 2012); Christy & Swan Profit Sharing Plan v. Comm’r, T.C. Memo 2011-62

(Mar. 15, 2011).

4. The IRS does have a broader reach, however, with its compliance checks that target specific types

of plans or issues. Since its establishment in 2005, the Employee Plans Compliance Unit has

conducted more than 23,000 compliance checks. See Employee Plans Compliance Unit , I.R.S.,

http://www.irs.gov/Retirement-Plans/Employee-Plans-Compliance-Unit-%28EPCU%29

(last updated Feb. 7, 2013). Compliance checks are not audits, but once completed, the taxpayer

will receive a letter that indicates the compliance check was reviewed and no further action is

required by the taxpayer, or a letter that identifies any items that require the taxpayer’s atten-

tion. See Employee Plans Compliance Unit (EPCU)—FAQs—General EPCU Questions , I.R.S.,

http://www.irs.gov/Retirement-Plans/Employee-Plans-Compliance-Unit-%28EPCU%29—

FAQs—General-EPCU-Questions (last updated Jan. 9, 2013).

5. Although the identification of common errors and IRS-approved correction methods in

EPCRS enable service providers to focus on potential mistakes, plan sponsors may wish to seek

legal counsel to determine whether the issue raised is, in fact, a compliance failure, and not, for

example, an issue based on a misunderstanding of the law or facts.

6. The ability to correct via plan amendment using SCP is limited to specific failures, such as the

failure to apply the compensation limit in Code Section 401(a)(17), loans and hardship distri-

butions made by a plan that does not provide for them, and the early inclusion of an otherwise

eligible employee. Rev. Proc. 2013-12 app. B § 2.07, I.R.B. 2013-4.

7. Id . § 9.01-.02(1). If multiple operational failures occurred within one year or a single failure

occurred across multiple years, the failures must be taken together to determine whether they



are insignificant. Id . § 8.03. EPCRS extends the deadline for correcting significant failures

in the case of plans or plan assets acquired through corporate mergers and acquisitions. Id .

§ 9.02(2).

8. Id . § 4.03. A favorable letter includes an IRS opinion letter for pre-approved plans. Id . § 5.01(4).

Special rules apply for § 403(b) plans. See Id . § 6.10(2).

9. Id . § 4.04.

10. Id . § 4.02.

11. Id . § 4.01(2). Qualification failures include plan document failures, operational failures, demo-

graphic failures, and employer eligibility failures, all as defined in EPCRS. See Id . § 5.01(2).

12. Id . §§ 1.03, 12.

13. Id . § 11.03.

14. Id. § 11.02.

15. Id . § 10.07(9).

16. Id. § 4.02.

17. Id . § 5.09(1)-(2).

18. Id. § 5.09(3).

19. Id . § 4.01(3). If the IRS discovers an insignificant failure during audit, it may allow the plan

sponsor to self-correct without payment of any sanction. Id . § 4.02.

20. Id . §§ 5.01(5), .02(6), 14.01.

21. Id . §§ 5.01(5), 6.02.

22. Id . § 13.01.

23. Id . § 14.02.

24. Id . § 14.04.

25. Form 8951 and its instructions are available at http://www.irs.gov/form8950. Appendix C now

contains the model Compliance Statement, similar to Appendix D of Rev. Proc. 2008-50,

along with Schedules 1-9 that generally replace the corresponding schedules to Appendix F of

Rev. Proc. 2008-50. Appendix D now contains the IRS acknowledgement letter.

26. Form 8951 and its instructions are available at http://www.irs.gov/form8951.

27. Rev. Proc. 2013-12 § 11.12, I.R.B. 2013-4.

28. Id . § 11.14.

29. Id . § 12.02(1).

30. Id . § 6.05(2).

31. Id . § 6.05(1).

32. Id . § 6.05(2)(b).

33. Id . § 6.02(5)(b).

34. See Rev. Proc. 2012-35, I.R.B. 2012-37.

35. Rev. Proc. 2013-12 § 6.02(5)(d)(ii), I.R.B. 2013-4.

36. Id . § 6.02(5)(d).

37. Id . § 6.02(4)(d).

38. Id . § 6.02(4)(e)(ii), app. A.06(3).

39. Id . § 6.02(4)(e)(ii).

40. Id . § 6.04(2)(c).

41. Id . § 4.04.



42. Id . § 6.06(4). Although EPCRS continues to require that plan sponsors take reasonable steps

to recoup the overpayment, the decision to recoup money on behalf of the plan should be a

fiduciary decision, which is outside the scope of EPCRS.

43. Id . § 6.02(4)(c).

44. Id . § 6.02(4)(c). The requirement that corrective contributions constitute a QNEC as defined in

Treas. Reg. § 1.401(k)-6 is already set forth in the sample correction methods in Appendix A.

See Id . app. A.03. But the Appendix A corrections are safe harbors, whereas the general cor-

rection principles in Section 6 are mandatory.

45. See Treas. Reg. § 1.401(k)-6.

46. See , e.g. , Rev. Proc. 2013-12 app. A.05(2)(b), I.R.B. 2013-4 . The policy behind the IRS’s posi-

tion is unclear. On a practical level, where a plan allows forfeitures to be used to offset future

employer contributions, the prohibition against the use of forfeitures to correct nondiscrimina-

tion failures or missed deferrals seems to be of little substance.

47. See , e.g. , Id . app. A.05(2)(c).

48. Id . app. A.05(2)(d).

49. Rev. Proc. 2013-12 § 6.10, I.R.B. 2013-4.

50. Id . § 6.10(3).

51. Id . § 12.02(5).

52. Id . § 4.09.

53. Id . §§ 10.10, 11.08(2).

54. Id .

55. Id . § 2.01(5)(2). The IRS initially requested comments on these topics in Rev. Proc. 2008-50.

56. See Fixing Common Plan Mistakes—Correcting a Failure to Implement the Plan’s Automatic

Enrollment Provisions , I.R.S., http://www.irs.gov/Retirement-Plans/Fixing-Common-Plan-

Mistakes—Correcting-a-Failure-to-Implement-the-Plan’s-Automatic-Enrollment-Provisions

(last updated Aug. 3, 2012).

57. See Fixing Common Plan Mistakes—Failure to Provide a Safe Harbor 401(k) Plan Notice ,

I.R.S., http://www.irs.gov/Retirement-Plans/Fixing-Common-Plan-Mistakes—Failure-to-

Provide-a-Safe-Harbor-401(k)-Plan-Notice (last updated Aug. 3, 2012).

58. Rev. Proc. 2013-12 § 2.01(5)(c), I.R.B. 2013-4.

59. See §§ 4.04 , 11.03(7).

© 2013 Aspen Publishers. All Rights Reserved. Reprinted from JPPC Summer 2013, Volume 39, Number 2, pages 28 to 41,

with permission from Aspen Publishers, a Wolters Kluwer business, New York, NY, 1-800-638-8437, www.aspenpublishers.com.


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