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ARA Pushes Back on IRS’ New Approach to VCP User Fees

The American Retirement Association has taken issue with the new VCP fee structure and approach taken by the IRS, charging that it is “unfair to small employers, and will have an adverse impact on plan participants.”

The comment letter, addressed to David J. Kautter, Acting Commissioner of the IRS, also notes that the approach is in “direct conflict with Congress’ directive to the Treasury Department to ‘[take] into account special concerns and circumstances that small employers face with respect to compliance and correction of compliance failures,’” and is a “complete departure” from the previous VCP user fee approach that was based on participant counts with lower fees for smaller plans.

The change was announced Jan. 2 in Revenue Procedure 2018-4 “with no advance warning, no discussion, and no grace period to allow plan sponsors the opportunity to make their VCP submissions prior to the new fees taking effect,” the ARA letter points out.

While acknowledging that the IRS must balance numerous competing compliance and enforcement concerns, and that in some instances, resource limitations may not allow for the luxury of extended research, analysis and debate, the letter explains that ensuring the operational compliance of their retirement plans is particularly burdensome for small employers due to the complexities of today’s myriad statutory and regulatory requirements for plan administration.

The ARA points out that the true beneficiaries of the new VCP user fees are large plan sponsors with plans that cover more than 100, more than 1,000, and more than 10,000 participants. While ARA agrees that the VCP change is likely to encourage large plans (the common term for plans over 100 participants) to utilize VCP, this new fee schedule triples, quadruples or even sextuples the VCP fee for small plans. “This unfair impact on small plans runs contrary to both the PPA mandate and general public policy,” the letter notes.

Even worse, the ARA letter points out, the new VCP user fee schedule eliminates entirely the special reduced VCP user fees that were previously available to all plan sponsors that wished to voluntarily correct such common compliance failures as missed required minimum distributions, participant loan failures and certain late amendment or non-amender failures. “These special reduced fees were beneficial to all sponsors,” the letter explains, but especially for small employers that do not have the financial resources of larger employers. “Further, the reduced fees for required minimum distribution and loan failures provided an incentive to employers to make corrections that were more favorable from a tax perspective) to participants than merely self-correcting the defect.”

The ARA recommends that the IRS immediately amend Rev. Proc. 2018-4 to:


  • provide that the applicable general VCP user fee is the lesser of the general VCP user fee in effect on Jan. 2, 2018, or the general VCP user fee in effect immediately prior to Jan. 2, 2018, pursuant to Revenue Procedure 2017-4; and

  • reinstate the special reduced VCP user fees in effect immediately prior to Jan. 2, 2018, pursuant to Revenue Procedure 2017-4.


“While plan assets are necessarily involved in these qualification failures, either directly or indirectly, the more meaningful relationship to the cost of processing the submission is the number of participants and beneficiaries affected by such failures,” the ARA notes.

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