FIS Relius
IRS Updates EPCRS; Reduces Some Fees 4/3/2015
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The IRS has published Rev. Proc. 2015-27 which makes several important changes to the Employee Plans Compliance Resolution System (EPCRS), the detailed IRS procedure to “fix” retirement plan mistakes.  Most of EPCRS is left unchanged, but there are definite improvements in selected areas.


1. Plan loans. EPCRS has long had a process that can provide forgiveness for plan loan failures. In the right situation, a participant can avoid the taxes and penalties associated with a deemed distribution of a defaulted loan. However, that process has involved filing with the IRS (VCP) and paying a filing fee ranging from $375 to $12,500, depending on the size of the plan. 


We had hoped that the IRS would allow self-correction of loan errors without filing, but they have not done so.  But they have significantly reduced the filing fees, thereby relieving one of the impediments that kept plan sponsors from using VCP for the benefit of their participants.  The new fees, which are tied to the number of problem loans, and not to the total number of plan participants, are:


Participants with

Loan Failures                       Compliance Fee

13 or fewer                                $ 300

14 to 50                                     $ 600

51 to 100                                   $1,000

101 to 150                                 $ 2,000

Over 150                                   $ 3,000


2.  Required minimum distributions. While we are on the subject of reduced fees, the IRS has adjusted the filing fee related to failure to make required minimum distributions. In the past, by paying a $500 filing fee an employer could restore the plan’s qualified status and, more important, remove the potential 50% excise tax for up to 50 participants. Now that same $500 can cover up to 150 participants, while a $1,500 fee would apply to failures involving 150-300 participants.


3. Section 415 failures. Code §415(c) limits the contributions and forfeitures that can be allocated to a participant’s account. For 2015, the limit is the lesser of $53,000 or 100% of the participant’s compensation.  Suppose a participant (age 45) defers $18,000 and the employer later contributes $40,000. The 2013 version of EPCRS allowed the plan to correct the excess annual additions by returning $5,000 of deferrals to the participant within 2½ months after the end of the year (and permits permit this type of correction to be made each year that the problem arises).  The IRS has changed the deadline to 9½ months after year end, and has retained the ability to do this correction process each year, if needed.


4. Overpayments. One of the most important categories of fixes within EPCRS relates to overpayments, what happens when the plan pays someone too much or too soon.  The fix has been fairly rigid: (1) Take reasonable steps to collect the money from the participant; and (2) in many situations, if the participant doesn’t repay the overpayment, the employer must contribute the overpaid amount to the plan. The new version provides additional options. In an appropriate situation, the employer can pay the overpayment without trying to recover it from the participant, or can amend the plan retroactively to conform to what was done.


5. Procedural issues.  The EPCRS revision clarifies that the employer should not request a determination letter for an amendment made by the adoption of or the changing of elections in a preapproved plan.  The revision also replaces certain appendices to EPCRS that had to be completed and filed with the submission with new IRS forms for this purpose. The new procedure also eliminates any reference to using the now defunct Social Security letter forwarding program as a method of finding lost participants.


We will address these issues in further detail at the Pensions on Peachtree conference in Atlanta, April 16 and 17, jointly sponsored by SunGard and the Ferenczy Benefits Law Center LLP.


This Technical Update is written in collaboration with Ilene H. Ferenczy from the Ferenczy Benefits Law Center LLP.




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