Expanded and Revised Qualified Pension Plan Correction Program | jackson walker

The Internal Revenue Service has updated and expanded the ability to correct operational and plan documentation flaws with the new and improved Employee Plan Compliance Resolution System (Rev. Proc. 2021-30) (EPCRS). Issued and generally effective July 16, 2021, the EPCRS revises and expands the previous version of the same program in a number of ways and pursues its goal of encouraging voluntary corrections at a limited cost while protecting employees and their pension benefits.

This article highlights some of the most important changes for employers sponsoring qualified pension plans.

Amended Voluntary Correction Program

Although EPCRS no longer allows anonymous requests for correction under the Voluntary Correction Program (VCP) after December 31, 2021, effective January 1, 2022, EPCRS instead allows an anonymous submission conference pre-VCP where a representative, after completing certain forms, can connect with an IRS agent and receive feedback from that agent on a non-binding basis.

Self-correction allowed

The EPCRS allows for self-correction without requiring the submission of even significant operational errors within three years of the year in which those errors occurred, provided that the corrections comply with current EPCRS program guidelines for the self-correction program (SCP). Previously, correction was required within two years.

EPCRS now defines that the correction must be substantially corrected by the end of the self-correction period by making the corrective contribution/adjustment to the plan accounts of 65% of plan participants whose accounts were affected by the operational error to be corrected. This change clarifies the level of completion required for the SCP program to apply. Some failures of plan documents can also be corrected within the framework of the SCP, provided that the specified requirements are met.

Extending the SCP period to three years will also give entities that acquire other companies with pension plan operating problems a bit more time to correct those errors and clarify the amount that needs to be corrected before the deadline. of the SCP for the SCP to apply.

Overpayments Processed

Overpayments of pension benefits are a common problem. The EPCRS, in addition to dealing with overpayments from defined contribution plans, now provides a mechanism for correcting overpayments from defined benefit pension plans in a way that takes into account the economic or funding situation of the plan and the impact of erroneous overpayments.

A consistent requirement for a defined benefit pension plan is that the plan benefit payment must be adjusted to the exact amount. There are alternatives that can be presented to the member, spouse or beneficiary receiving the payments. In addition, sponsors of defined benefit pension plans may have adjustment choices depending on the funded status of the relevant pension plan.

As adjustments are made to annuity pension distributions, plan sponsors should consider spousal rights and the impact on the rights of spouses and qualifying survivors, as outlined in the EPCRS.

Increase in small “excess amounts”

Another useful change was for the IRS to increase small “excess amounts” that did not require correction from $100 to $250. This saves the plan from having to distribute an excess amount if it is less than $250. This does not apply to an amount contributed that exceeds the annual dollar limit on employee wage reduction contributions or other statutory limits on contributions. Care should be taken to ensure that the amount is considered an “excess amount” under the EPCRS before the plan decides that it does not need to make a distribution.

The EPCRS is now 140 pages, so it is a very high level summary of some points.

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