Transcript New Forms for EPCRS Submissions

The New EPCRS Has
Been Issued:
Rev. Proc. 2013-12
Ronald J. Triche
Jennifer Dack Brooks
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Agenda
 Overview: What is the EPCRS?
 Process: New forms and fees
 403(b): Expanded application of EPCRS
 Methodology: New correction methodologies
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What is the EPCRS?
 Employee Plans Compliance Resolution System
 Most recent edition: Revenue Procedure 2013-12
(http://www.irs.gov/pub/irs-drop/rp-13-12.pdf)
> Effective April 1, 2013 (but, you can rely on it in advance)
 Composed of three programs
> Self Correction Program (“SCP”)
> Voluntary Correction Program with Service Approval (“VCP”)
> Correction on Audit (“Audit CAP”)
 If a plan sponsor corrects in accordance with one of the
EPCRS programs the Internal Revenue Service (“IRS”) will not
treat the plan as failing to meet the qualification requirements
of the Internal Revenue Code (“Code”)
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Qualification Failures
 Any failure that adversely affects the qualified status of a plan
 Under EPCRS, there are generally 4 types of Qualification
Failures:
> Plan Document Failure – a plan provision (or absence
thereof) that, on its face, violates the requirements of
Code Sections 401(a) or 403(b)
> Operational Failure – arises solely from the failure to follow
plan provisions
> Demographic Failure – failure to satisfy the
nondiscrimination requirements, participation requirements
or coverage requirements that is not an Operational Failure
> Employer Eligibility Failure – the adoption of a 401(k) or
403(b) plan by an ineligible employer
 Special rule for Code Section 457(b) plans
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New Forms for EPCRS Submissions
 Form 8950 (Application for Voluntary Correction
Program (VCP))
> Form 8950 (http://www.irs.gov/pub/irs-
pdf/f8950.pdf)
> Must be included with all VCP submissions sent to the
IRS on or after April 1, 2013
> Combines the old Appendix C (VCP Checklist) with
parts of the old Appendix D (VCP Submission)
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New Forms for EPCRS Submissions
 Form 8951 (Compliance Fee for Approval for
Voluntary Correction Program Submission Under the
Employee Plans Compliance Resolution System
(EPCRS))
> Form 8951 (http://www.irs.gov/pub/irs-
pdf/f8951.pdf)
> Must be included with all VCP submissions sent to the
IRS on or after April 1, 2013
> Similar to the Form 8717 used for a Determination
Letter Application (“DLA”)
> The filing fee check must be “attached” to the Form
8951 and a copy of the check must be included
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New Forms for EPCRS Submissions
 New Appendix C (Model VCP Submission
Documents)
> Part I – Model VCP Submission Compliance Statement
• Incorporates many features of the old Schedule D
> Part II
• Consists of 9 Schedules
• Replaces the Old Appendix F and its 9 Schedules
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New Forms for EPCRS Submissions
 New Appendix C
> New forms are not required to be used
• Can use Part I and Part II together or separately
> No changes may be made to the format or content
of the Model VCP Submission Compliance
Statement or any Schedule
• Home purchase loan correction issue (Part II,
Schedule 5)
 New Appendix D (Acknowledgement Letter)
> Replaces old Appendix E
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Assembling Your EPCRS Submissions
 For a 403(b) plan VCP Submission, you must
> Include a statement (if applicable) that the plan
sponsor
• Has contacted all other entities involved with the plan,
and
• Has been assured cooperation in implementing the
correction
> Include a statement as to the type of employer that is
making the submission
• For example: “This VCP Submission is being submitted
by a tax-exempt organization described in Code Section
501(c)(3)”
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Assembling Your EPCRS Submissions
 If you are sending in a VCP Submission and a DLA
> They must be mailed in a single package
> They must be assembled separately and include
duplicate documents (where necessary)
> If a plan restatement is evidence of the correction,
you must identify
• The page and section of the document, and
• The specific plan language that resolved the
Qualification Failure
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Assembling Your EPCRS Submissions
 Anonymous VCP Submissions must include the
following statements
> “Under penalties of perjury, I declare that I am an
authorized representative of the Plan Sponsor who
complies with the Power of Attorney requirements
described in section 11.07 of Revenue Procedure 2013-12.
I will submit an executed Form 2848 upon the disclosure
of the Plan Sponsor to the Service.”
 New order of required documents
> Addition of Forms 8950 and 8951 (with a copy of the
check)
> Related DLA has been moved to the end of the package
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Assembling Your EPCRS Submissions
 New addresses
First Class Mail
Express Mail or Private
Delivery Service
Internal Revenue Service
Internal Revenue Service
P.O. Box 12192
201 West Rivercenter Blvd.
Covington, KY 41012-0192
Attn: Extracting Stop 312
Covington, KY 41011
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VCP Correction Period
 Generally, you must substantially complete your
correction within 150 days of the date the VCP
Compliance Statement is issued by the IRS
 The following types of plan sponsors are eligible for an
exception if they are affected by the elimination of the
IRS letter forwarding service
> The plan sponsor received a VCP Compliance Statement
and the related 150-day correction period has not expired
> The plan sponsor is correcting the failures under SCP and
is within 150 days of the end of the 2nd plan year following
the plan year in which the failure occurred
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VCP Correction Period
 “Eligible” plan sponsors that are correcting failures that
require payment of additional benefits to participants
and beneficiaries will have until the earlier of the
following dates to take reasonable actions to locate the
participants and beneficiaries:
> May 30, 2013
> 150 days after the date the IRS notifies the plan
sponsor that the request to locate the missing
participants and beneficiaries will not be processed
• Available if the request to use the IRS letter
forward service was sent to the IRS after August
31, 2012
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VCP Submission Fees
 General fees for a VCP Submission did not change
 New reduced fees for certain corrections
> Failure to adopt a written 403(b) plan document
• 50% of the standard fee if
– submitted by December 31, 2013, and
– this is the only failure submitted
> Failure to adopt a required amendment within 90
days after the issuance of a favorable determination
letter
• $500 if it is adopted within 3 months of the
deadline
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VCP Submission Fees
 Fees for multiple failures that qualify for a reduced fee
> The lesser of the standard fee or the sum of the reduced
fees
 If a Form 5500 is not required for a plan (e.g., non-ERISA
403(b) plans)
> The number of participants will generally be the number of
participants as of the last day of the previous plan year
• If this data is not yet available, then use the number of
participants from the most-recent plan year for which
the data is available
– Does not apply if the VCP Submission is mailed
more than 7 months after the end of the plan year
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VCP Submission Fees
 For multiemployer and multiple employer plans with failures
applying to fewer than all of the employers
> The administrator may elect to use the number of
participants of the affected employer(s) instead of the
entire plan
 For a pre-approved plan’s group submission, the fee is based
on
> The number of basic plan documents (as opposed to the
number of adoption agreements), and
> The number of employers that have adopted the basic
plan document by using an adoption agreement associated
with the basic plan document
 The VCP Submission check may be converted to an
“electronic fund transfer”
> Usually processed within 24 hours of receipt
> The check will not be returned to the applicant
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Audit CAP Fees
 The Audit CAP fees for nonamender issues not
voluntarily identified by the plan sponsor has changed
> This must be the only issue discovered by the IRS
> The fees in all categories have increased
> The “EGTRRA/subsequent legislation” category has
been replaced by
• “Employer’s 2nd 5 or 6 year Remedial Amendment
Cycle”, and
• “Employer’s 1st 5 or 6 year Remedial Amendment
Cycle”
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Audit CAP Fees
 If the only issue discovered by the IRS is the failure
to adopt good faith amendments, interim
amendments, or amendments required to reflect the
change in the operation of the plan because of
implementation of optional law changes by their
applicable deadlines (but before the expiration of
the plan’s extended remedial amendment period)
> The Audit CAP fee is 40% of the applicable fee
(based on the number of participants under the
“Employer’s 2nd 5 or 6 year Remedial Amendment
Cycle” category)
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Audit CAP Fees
 If the only issue discovered by the IRS is the failure
to adopt a required amendment within 90 days after
the issuance of a favorable determination letter
• The Audit CAP fee is $1,000 if it is adopted
within 3 months of the deadline
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New 403(b) provisions
 403(b) plans can now use EPCRS to correct
operational and plan document failures
> Correction for a 403(b) plan expected to be the same
as for a qualified plan
> A 403(b) plan is treated as having a favorable
determination letter if the eligible employer adopts a
written plan effective as of January 1, 2009, or the
effective date of the plan or the employer-corrected
failure to adopt written plan through VCP
> Correction for failure to adopt written plan, Appendix
C, Schedule 2
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New 403(b) provisions
 If failure occurred prior to 2009, EPCRS is only
available to correct if failure constitutes a violation
of Code Section 403(b)
> For example, a failure to limit deferrals to the Code
Section 402(g) limit
 Pre-2009 operational failures (failure to follow plan
provisions) may not be corrected through EPCRS
> Operational failures occurring in 2009 or after may be
corrected
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New Overpayment Correction Methodology
 New EPCRS definition:
> Payment made to a participant that exceeds the
amount payable to the participant under the plan or
that exceeds a legal limit
> From DB or DC plan
> Includes payments from DC plan not paid from a
participant’s account, or not permitted to be paid
under the Code, regulations, or the plan’s terms
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New Overpayment Correction Methodology
 Overpayment adjusted for earnings at the plan’s
earnings rate returned by the participant
> Previously, EPCRS referred to appropriate interest
 To the extent the Overpayment (adjusted for
earnings at the plan’s earnings rate) is not returned,
the employer must contribute the difference
 Exception: the employer does not have to
contribute the difference if the failure arose solely
because of a payment from the plan in the absence
of a distributable event
> For example, an impermissible in-service distribution
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New Overpayment Correction Methodology
 Resolves discrepancy between interest and the
plan’s earnings rate
 Gave DC plans an exception, but not in all cases
> Withdrawal made by participant prior to termination
(e.g., transferred to a non-participating member of
the controlled group) – not required to make plan
whole
> Profit sharing contribution incorrectly calculated and
the excess amount is distributed to the participant at
termination – employer must make plan whole
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Earnings
 Rev Proc 2013-12 adds a new definition of
“Earnings”
> Adjustment of an amount to reflect gains and losses
unless otherwise specified
 Corrective allocations are not required to be
adjusted for losses, must be adjusted for gains, may
be adjusted for losses
 No specific guidance on application of losses to
corrective reductions in account balances
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Exclusion of employee from safe harbor plan
 If safe harbor matching contribution, missed deferral
equals 3% of compensation, or maximum deferral
percentage for 100% match
 If safe harbor nonelective contribution, missed
deferral equals 3% of compensation
 QNEC equals 50% of missed deferral, plus safe
harbor match or nonelective contribution
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Exclusion of employee from non-safe harbor
plan cont.
 If the employee is not permitted to make elective
deferrals and did not receive an allocation of a nonsafe harbor matching contribution, the employer
must make a corrective employer nonelective
contribution on behalf of employee
> Language changed from QNEC
> Corrective contribution may be subject to the plan’s
vesting schedule
> Corrective contribution may be made from forfeiture
account
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QNEC to Correct ADP or ACP failure
 New EPCRS specifically provides that amounts used
to fund such QNECs must satisfy the definition of
QNEC in Reg. Sec. 1.401(k)-6
> Cannot be made from forfeitures
> Must be 100% vested
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Code Section 436 Impact
 New method to correct failures to meet Code Section
436 requirement
> Payment of benefits that fails to satisfy Code Sections
436(b), 436(c), or 436(e)
> Make a contribution to the plan, adjusted for interest
up to the date contributed
> Contribution equal to amounts under Code Sections
436(b)(2), 436(c)(2), and 436(e)(2) as applicable
 Such contributions treated as “section 436 contributions”
separate from a minimum required contribution under
Code Section 430 and are disregarded for determining
prefunding balance
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Code Section 436 Impact cont.
 Corrective distribution or corrective amendment is
not subject to Code Section 436 requirements
 But, if a plan is subject to a Code Section 436
restriction at the time of the correction, the Plan
Sponsor must make a contribution to the plan
> If it is lump sum or other prohibited payment, then
contribute the amount of the corrective distribution
(in certain cases, only half)
> If it is a corrective amendment, then contribute an
amount equal to the increase in the funding target of
the plan attributable to the amendment
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Code Section 436 Impact cont.
 Other sections of EPCRS revised to reflect the restrictions
of Code Section 436
> Failure to timely pay minimum required distributions
(“MRDs”), correction is to distribute the MRDs plus
interest.
• If the plan is subject to a restriction on single-sum
payments under Code Section 436(d), the employer
must contribute the applicable amount discussed
above
> Failure to obtain spousal consent,
• The spouse may elect a single-sum payment, and if
does so, the employer must contribute applicable
amount discussed above
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When is a DLA required?
 Revised provisions to make it more clear
 DLA not permitted for
> Correction by adoption of IRS model amendment
> Correction by adoption of prototype or volume
submitter plan with an opinion or advisory letter
> Demographic failure
> Failure to timely adopt good faith amendments,
interim amendments, or amendments to implement
optional law changes before expiration of remedial
amendment period
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When is a DLA required? Cont.
 If an operational failure is corrected by plan
amendment permitted under SCP, the plan sponsor
must submit a DLA, including the corrective
amendment, during plan’s next on-cycle year, or
termination if earlier
 If an operational failure is corrected by plan
amendment submitted to VCP or Audit CAP during
an on-cycle year, or year of termination, a DLA is
required
 Nonamender failures not excepted above require a
DLA
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Correcting Failures Not Addressed in EPCRS
 What do you do when you come across a failure not
addressed in EPCRS?!
 Helpful Hints
> On a regular basis (at least annually), employers should
review procedures and documentation to determine if
they have any qualification failures
> If you discover an issue, you should correct it as soon
as possible
• Use SCP (self correction) if available
> If you need to file a VCP Submission, consider filing it
on an anonymous basis
• Drawback: No audit protection while application is
pending
> Throw in the kitchen sink if a VCP application is to be
filed
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Future Expansions to EPCRS
Potential future expansions to the EPCRS
> Corrections for failure to implement automatic
enrollment and/or automatic escalation in a Code
Section 401(k) or 403(b) plan (including safe
harbor plans)
> Corrections for failing to timely provide a safe
harbor notice
> Corrections of issues relating to designated Roth
contributions
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Contact
 Ronald J. Triche
[email protected]
 Jennifer Dack Brooks
[email protected]
Trucker  Huss, APC
One Embarcadero Center, 12th Floor
San Francisco, CA 94111
(415) 788-3111
www.truckerhuss.com
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Disclaimer
 These materials have been prepared by Trucker  Huss, APC for
informational purposes only and constitute neither legal nor tax
advice
 Transmission of the information is not intended to create, and
receipt does not constitute, an attorney-client relationship
 Anyone viewing this presentation should not act upon this
information without seeking professional counsel
 In response to new IRS rules of practice, we hereby inform you
that any federal tax advice contained in this writing, unless
specifically stated otherwise, is not intended or written to be used,
and cannot be used, for the purpose of (1) avoiding tax-related
penalties or (2) promoting, marketing or recommending to
another party any tax-related transaction(s) or matter(s)
addressed herein
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