The IRS recently made it easier (and less costly) to fix certain operational issues without the need for an IRS filing or payment of a user fee – but will this have an impact on current usage?
The vast majority (84%) of this weeks’ respondents said their plan sponsor clients that needed to, did use those programs, while another 9% said they did “but only because I encourage them to.” The rest? Well, they responded, “No, but they should.” “They do so, but only with the approval of outside retirement plan counsel,” noted one reader.
“There are still clients that choose not to use the correction programs for various reasons,” explained one. “They think it’s going to cause an audit; takes too much time; cost, etc. Most choose not to use the IRS correction VCP filing. Do not see clients using the new IRS program since either they or an (expensive) attorney most like would need to create and submit the filing.”
“Despite the improvements they've made over the years, it’s still not the most straightforward process in the world,” noted one reader. “The Revenue Procedure is quite long. It’s not always easy to find what you need. I’ve been to several conference sessions on EPCRS and still don’t get it. It's just easier to make a good-faith effort at correcting and hope for the best. Most clients don’t really want to pay a fine or user fee, anyway.”
As to the frequency of usage, roughly half (48%) said they used it “some,” while about half that number (23%) described that usage as “not much,” and 16% said “almost never.” The rest indicated that the programs were used “a lot.”
One reader explained, “We don’t have many clients that need to use it. But when an issue comes up, they do utilize the program.”
Another noted, “The Self Correction Program (SCP) gets used more than anything else.” Another observed, “I am aware to the extent that I have a TPA on top of the DOL programs.”
If you missed it, the IRS made it a truly “good” Friday when, in a major victory for the advocacy efforts of the American Retirement Association, new rules under the IRS’ Employee Plans Compliance Resolution System (EPCRS) were announced that now allow the self-correction program (SCP) to permit correction of certain plan document failures and certain plan loan failures, including the ability to correct defaulted plan loans, the failure to obtain spousal consent on a plan loan, and the failure of permitting plan loans that exceed the number of plan loans permitted under the terms of the plan. The revenue procedure also provides an additional method of correcting operational failures by plan amendment under SCP.
We asked readers if they had had a chance to brief their clients on these changes, and just 3% had, with half responding “not yet,” while another quarter simply said “no.” Roughly one in nine said they had discussed it with “some,” but the rest were in the “what expanded EPCRS program” category (see above).
Asked if they’d like to see additional improvements, just over half (55%) said yes, while another third (36%) weren’t sure. The rest either had no idea, or were not seeing the need for any change(s).
As for what improvements they’d like to see, readers noted:
“It is not necessarily the specific errors that need additional coverage, but rather a clarification of what the IRS deems 'insignificant' and 'significant.' In my experience, nearly all plan errors that we have come across were non-malicious and therefore, I think that nearly all errors should be covered under self-correction.”
“A summary of the program and any changes” (see above).
“Make it more of an application and easy process. Regulations are too much.”
“Give employers one free pass per year to correct any minor error with no fee.”
“Allow more self-correction opportunities and reduce voluntary correction fees for minor corrections, such as, based on the number failed transactions.”
“A far better program than the still-cumbersome and still-expensive VCP!”
“I’d like to see an easier, less cumbersome correction for late deposits... very common error, but a nightmare to correct! I’d also love it if they put some de minimis limits on the 5330 filings. The more SCP fixes, the better!”
“Most clients want to correct without involving the government, their fees, and their delays. As an example, almost all of our clients will choose to correct late deposits outside of VFCP. They use the plan's highest rate of return rather than the calculator, but that is worth it not to have to complete all the paperwork (or pay us to complete as much as possible) and go through the program. Clients don't know what's available unless we tell them, and whenever self-correction is a possibility, that’s what they choose.”
Reader Comments
We did get a number of additional comments, including these:
“There could be more awareness of how the program works and availability. Typically, advisors do not learn about the program until they need it.”
“Again, the lack of clarity around ‘insignificant’ and ‘significant’ needs to be addressed. While, I appreciate the IRS cannot cover every possible error that could occur, it would be extremely if more examples were provided.”
“I don’t think most plan sponsors are aware of it. There needs to be more education.”
“I believe most plan sponsors don't intentionally make mistakes and when they find one, they correct. It’s very simple but yet the IRS makes it very complicated. It should not be a costly enterprise to fix something and move on. It’s the thinking that these plans can be complicated to operate and there should be some consideration of that by the IRS. Maye more small employers would have plans if the operation was not so taxing on them.”
“Here’s how I think it should work: I write a letter explaining the situation, tell them what we’ve done to correct, and pay a fee. About 20 years ago, I was dumb enough to think that’s how it worked. I got a phone call saying, ‘Uh, no.’ I was told I had to explain what rule was violated, etc., etc. I thought, this is too much work. I thought the IRS would have someone there who could figure it out. Thus, my clients still rarely avail themselves of EPCRS just because it's so darn hard.”
“Basing correction fees on plan assets hurts small business for many minor infractions. I tried and failed to budge the IRS on this fee issue with a client's correction, but it fell on deaf ears. In other words, all of my correspondence sent to various IRS individuals received 100% no response.”
“This is one of those things that you don't need to know until you need it situations... I mentioned in passing that EPCRS had expanded, but my plan sponsors aren't throwing a party about it because they mostly try not to have to need to use the correction programs!”
Thanks to everyone who participated in our weekly NAPA-Net Reader Poll!
