Advisory Committee on Tax Exempt and Government Entities (ACT ...

Improving the Employee Plans Compliance Resolution System: A Roadmap For Greater Compliancearise when the corrective measure involves a participant who has terminated from thePlan Sponsor and has moved to a new address.In order to encourage Plan Sponsors to make a diligent search for and properly correctsignificant Plan Failures, the ACT recommends extending the duration of the selfcorrectionperiod for significant Operational Failures to the end of the third (3 rd ) planyear following the plan year in which the Operational Failure occurred. To discouragedelay, the Service may want to consider adding to the duration extension a requirementthat self-correction must be substantially completed within one year of the time that thePlan Failure is discovered. 54 This added requirement will ensure that timely correctionsare made, particularly in those cases where affected Participants are aware of the PlanFailure and are concerned about timely correction(s) being made.2. Expansion of SCP Amendment OptionsPermitting Plan Sponsors to adopt retroactive corrective plan amendments without priorService approval is not a new concept. In Rev. Proc. 2005-16 55 (Employee PlanQualification Requirements – M&P and Regional Prototype Program), the Servicerecognized that Plan Sponsors may retroactively amend prototypes to correcttypographical and cross-referencing errors. 56 Moreover, EPCRS currently allows a PlanSponsor to use SCP to correct Operational Failures by plan amendment for certaindesignated Operational Failures and according to specified methods. 57 The listed PlanFailures are:• Considering compensation in excess of the Code section 401(a)(17) limits;• Making hardship distributions to employees under a plan that doesnot provide for hardship distributions;• Permitting plan loans to employees under a plan that does notprovide for plan loans; and• Including in a plan an otherwise ineligible employee who has notcompleted the plan’s minimum age and service requirements, orwho has completed the plan’s minimum age and service54 In order to further ensure good faith efforts to self-correct significant Operational Failures by Plan Sponsors, the ACT consideredsupporting the American Society of Pension Professionals and Actuaries (“ASPPA”) in its recommendation that Plan Sponsors berequired to notify the Service when a self-correction of a significant Operational Failure is made. A new form could be created forthis purpose, or the Form 5500, which already asks certain questions about operational and fiduciary compliance, could bemodified to include additional questions pertaining to utilization of the SCP during the plan year. While the ACT respects theconcept behind the recommendations and it may be consistent with Commissioner Miller’s recent statement that the Serviceneeds to know more about the process of SCP (see note 4), the Act is concerned about the chilling effect that such a requirementcould have, as well as the lack of clarity as to what the Service would do with these findings. Hence, it does not recommend sucha filing requirement.55 2005-10 I.R.B. 674, 2/18/2005. 56 Id. at § 19.03.57 Rev. Proc. 2006-27, § 4.05(2). ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 22