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Improving the Employee Plans Compliance Resolution System: A Roadmap For Greater ComplianceII. INTRODUCTION “EPCRS is a popular program, and it has greatly helped many planparticipants retain tax-favored retirement benefits. We hope PlanSponsors will take advantage of the features of EPCRS. But evenif they don’t, the IRS strongly encourages Plan Sponsors toregularly monitor and evaluate their retirement plans to ensurecompliance with the law.”A. Reason for the ReportCarol GoldDirector, Employee Plans (1999-2006)May 5, 2006 3This project arises from a perceived need to improve what Commissioner Steven T.Miller has referred to as a “signature program” of the Employee Plans Division (“EP”) ofthe Tax-Exempt and Government Entities Branch of the Service (“TE/GE”). 4 Whileagreeing that EPCRS has become a successful mainstay of the compliance mechanismfor qualified plans, tax-sheltered annuities (“403(b) plans”), Simplified EmployeePension Plans (“SEPs”) and SIMPLE IRAs, the <strong>Advisory</strong> <strong>Committee</strong> to TE/GE (the“ACT”) believes that significant improvements to the system would further the purposeof EPCRS and make it a more useful and beneficial program. This belief emanatesfrom two sources. First, as described more fully below, the enactment of section 1101of the PPA represents a Congressional directive to improve EPCRS. Second, thecollective experience of the ACT members demonstrates that, while extremely valuable,EPCRS should be refined to make it even fairer, easier to use, and more responsive toa number of technical concerns.3IR – 2006-75, May 5, 2006.4Remarks of Steven T. Miller, Commissioner, Tax-Exempt and Government Entities, before the Great Lakes Benefit Conference,Chicago – May 3, 2007. Reprinted at Tax Core No. 86, Friday, May 4, 2007.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 4
Improving the Employee Plans Compliance Resolution System: A Roadmap For Greater ComplianceB. EPCRS1. The Three Sub-Parts of EPCRSDesigned to allow plan administrators to voluntarily correct Plan Failures 5 whendiscovered, EPCRS is composed of the following three programs:• Self-Correction ProgramUnder SCP, administrators that have established compliancepractices and procedures may generally correct insignificantOperational Failures under a qualified plan, a 403(b) plan, a SEP,or a SIMPLE IRA at any time without paying any fee or sanction,provided that, if a SEP or SIMPLE IRA is involved, the SEP orSIMPLE IRA is established and maintained on a Service-approveddocument. In addition, in the case of a qualified plan that is thesubject of a favorable Service determination letter, or in the case ofa 403(b) plan, administrators may generally correct significant PlanFailures without payment of any fee or sanction by the end of thesecond plan year following the plan year in which the Plan Failureoccurred. 656As used in EPCRS and this report, a Plan or Qualification Failure is any failure that adversely affects the tax qualified status of aplan. Plan Failures may be divided into four classifications: (i) Plan Document Failures, (ii) Operational Failures, (iii)Demographic Failures, and (iv) Employer Eligibility Failures. Plan Document Failures include plan provisions (or the absence ofplan provisions) that, on their face, violate the requirements of section 401(a) or section 403(a) of the Code. For example, thefailure of a plan to be amended to reflect a new qualification requirement within the plan’s applicable remedial amendment periodunder section 401(b) is considered a Plan Document Failure. Additionally, a “non-amender” (an employer that has not adoptedamendments required by legislation or IRS guidance by the required date) would also be considered to have experienced a PlanDocument Failure. An Operational Failure is a type of a Plan Failure that arises solely from the failure to administer the plan inaccordance with plan provisions. For example, allowing an “in-service” distribution to a plan Participant, in contravention of theplans’ provisions is considered to be an Operational Failure. A plan does not have an Operational Failure to the extent the plan ispermitted to be amended retroactively pursuant to section 401(b) or another statutory provision to reflect the plan’s operations.However, if within the applicable remedial amendment period under section 401(b), a plan has been properly retroactivelyamended for statutory or regulatory changes, but during that retroactive period, the amended provisions were not followed, thenthe plan is considered to have an Operational Failure. A Demographic Failure is the type of failure which results from violations ofsection 401(a)(4), section 401(a)(26) or section 410(b), which are not Operational Failures or Employer Eligibility Failures. Forexample, a plan’s failure to meet the minimum coverage requirements of section 410(b) is a Demographic Failure. Generally, thecorrection of a Demographic Failure requires a corrective amendment to the plan document expanding eligibility or benefits forplan Participants. The final type of failure is an Employer Eligibility Failure. These failures result when a Plan Sponsor is noteligible to adopt the type of plan that it has adopted. For example, certain types of employers are ineligible to adopt 401(k) plans.Rev. Proc. 2006-27, § 9.02.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 5
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Withholding RequirementsACCOUNTING
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