Navigating IRS Employee Benefit Correction Plans
Retirement savings plans offer valuable security for employees – but managing these plans can become complex, and unintentional errors can occur. The good news is that programs are in place to help you correct those mistakes and avoid serious consequences. Employee benefit correction programs (EPCPs) are programs that help employers and plan administrators correct mistakes in their employee benefit plans and potentially avoid or reduce penalties from the Internal Revenue Service (IRS) or the Department of Labor (DOL).
We’ve provided a breakdown of three key EPCPs:
- IRS Employee Plans Compliance Resolution System (EPCRS): This program from the IRS is your first line of defense. EPCRS offers three options, depending on the severity of the error:
- Self-Correction Program (SCP): This allows you to fix minor errors yourself without IRS involvement, which is ideal for catching and correcting administrative mistakes early on.
- Voluntary Correction Program (VCP): For more significant errors, the VCP allows you to proactively disclose the issue to the IRS, propose a correction plan and get their approval. This protects your plan’s tax-favored status if you follow their guidelines.
- Audit Closing Agreement Program (Audit CAP): If the IRS discovers an error during an audit, Audit CAP allows you to propose a correction and negotiate a penalty. While there is a fee involved, the fee is typically less severe than losing the plan’s tax benefits.
Who Needs EPCRS? Any employer sponsoring an employee benefit plan can utilize EPCRS. It is particularly helpful if you discover administrative errors, eligibility issues or contribution mistakes.
- Department of Labor Voluntary Fiduciary Correction Program (VFCP): This program, offered by the DOL, focuses on correcting fiduciary breaches. Fiduciaries, like plan trustees or investment managers, have a legal duty to act in the best interests of plan participants. The VFCP allows fiduciaries to self-report breaches and propose a plan to fix them, avoiding potential litigation or penalties from the DOL.
Who Needs VFCP? This program is useful if a fiduciary makes a mistake, such as investing plan assets imprudently or failing to follow plan documents.
- DOL Delinquent Fiduciary Voluntary Correction Program (DFVCP): Similar to VFCP, the DFVCP addresses fiduciary breaches, but with a twist. It’s designed for situations where there’s also a delinquent fiduciary obligation, such as failing to properly file required reports or failing to pay benefits owed to participants.
Who Needs DFVCP? This program is applicable if a fiduciary has neglected their responsibilities and needs to correct the breach along with the delinquency.
While these programs are designed to help, it is always best to consult with a qualified employee benefits professional if you suspect an error in your plan. Windham Brannon’s employee benefit plan audit professionals can guide you through the appropriate EPCRS program and ensure a smooth correction process. For assistance with an EPCP for your plan, contact your Windham Brannon advisor today, or reach out to Anne Morris.
