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June 4, 2003
IRS Updates and Improves EPCRS |
On June 4, 2003,
IRS issued its annual update to the Employee
Plans Compliance Resolution System, or “EPCRS” (Rev.
Proc. 2003-44). EPCRS is the IRS’ comprehensive
system of correction programs that are available
to sponsors of qualified retirement plans
that have suffered one or more qualification
failures.
Major Improvement in Procedure. This newest
EPCRS procedure, while still long and quite
detailed, contains some very significant
simplifications. For the most part, the new
procedure reflects a continuing consolidation
of earlier advances, as IRS has consistently
fine-tuned the qualification correction programs
over the past few years in response to comments
from the retirement plan private sector.
And now, this latest EPCRS release essentially
constitutes a sensible and coherent procedural
manual for practitioners and plan sponsors
to follow. (Prior years’ releases were
more concerned with the necessary substantive
issues of qualification failures; i.e., which
defects or mistakes could be fixed, and in
what manner; how were corrective contributions
and investment earnings to be calculated,
etc.)
Important Changes. The new EPCRS includes
several changes worth noting.
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The voluntary correction IRS filing component,
which previously contained several subtypes
(VCP general, VCO operational, VCS simplified,
VCT 403(b) plans), is now streamlined into
a single voluntary filing program. As IRS
notes, this consolidation will eliminate
confusion over which procedure is most appropriate.
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A single fee schedule, for all voluntary
submissions, will simplify the application
process. The new fee schedule is based strictly
upon the number of plan participants (or
employees, for 403(b) plans). The graded
schedule starts at $750 for a plan of up
to twenty participants; other scheduled fees
are $1,000 for up to 50; $2,500 for up to
100; $5,000 for up to 500; $8,000 for up
to 1,000. Larger plans would pay more: $15,000
for up to 5,000 participants; $20,000 for
up to 10,000, and a cap at $25,000 after
that.
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If a non-amender (e.g., EGTRRA or GUST non-amenders)
files for correction within the first year
after the plan’s remedial amendment
period has expired, the fee would be one-half
of the scheduled amount.
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EPCRS has been expanded to provide correction
relief for SEPs and SIMPLE IRAs.
-
Group submission procedures have been streamlined,
so that TPA firms and other service providers
can correct numerous plans in a single submission.
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Preparation of submission has been made simpler
by reducing the amount of paperwork required
in the packages. Also, the new release includes
sample formats for practitioners to use in
making EPCRS submissions.
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The new EPCRS is not without some substantive
changes. In one of the important ones, IRS
revisits the situation in which a plan’s
distribution notice/consent is defective,
but the participant has already been paid
out his entire account. This has been a favorite
of IRS on plan audits, so IRS has addressed
it again in the EPCRS publication. The new
EPCRS release provides, for example, that
if the spousal notice/consent rules were
not properly followed, and the plan is unable
to obtain a new, valid consent after having
already paid out the account, then the plan
would be required to pay the spouse’s
benefit a second time. (While ERISA would
automatically grant that benefit to the aggrieved
spouse anyway, IRS decided to address it
as well, because the same situation also
speaks to the plan’s tax-qualified
status.) Another new corrective item applies
in the case of a qualification defect that
is a plan loan failure (the correction can
include issuing a Form 1099 for the year
of correction.)
-
Unchanged are the EPCRS standards for self-correction,
where an IRS submission is not required.
Similarly, the explanations of the acceptable
corrective techniques (to determine the amounts
of corrective contributions and earnings
for operational failures) remain the same
for the most part. Again, the thrust of this
latest release is the new simplicity
in the filing of voluntary submissions, and Rev.
Proc. 2003-44 will serve as a useful operations
manual for such submissions.
More User-Friendly.
IRS has gone to great length to simply EPCRS.
IRS has even released the new revenue procedure
in a red-lined version [http://www.irs.gov/pub/irs-tege/rp0344_red.pdf]
so that the nature and scope of the changes
can be readily grasped. In the near future,
many favorable comments about the IRS’ approach
to this release can be expected be heard,
and undoubtedly several pension industry
continuing education seminars will be scheduled
to discuss EPCRS. Distilled to its essence,
however, Rev. Proc. 2003-44 really just constitutes
a straightforward and comprehensive, but
long overdue, instruction manual for the
correction of qualification failures. For
that, it will be applauded.
© 2003 Paul Kelly, Attorney at Law
1801 Century Park East, Suite 2400
Los Angeles, California 90067
Tel: (310) 553-3060
e-mail: pkellyesquire@netscape.net
(Posted with permission granted to National Retirement Services, Inc.)
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