Special Rules for Self-Correction of Retirement Plan Errors
ADP and ACP test corrections
The two-year period for self-correcting ADP or ACP test violations starts after the close of the 12-month correction period that is provided by the 401(k) and (m) regulations.
Example: The ADP test is failed for the plan year ending December 31, year 1. The regulatory correction period ends December 31, year 2. The self-correction period would extend for two plan years beyond the end of the regulatory correction period, ending on December 31, year 4.
Correction via plan amendment
A plan sponsor may self-correct an operational failure by a plan amendment to conform the terms of the plan to the plan’s prior operations to correct:
- hardship distributions without authorizing plan language,
- loans made without authorizing plan language, or
- early inclusion of otherwise eligible employee.
In limited circumstances, a plan sponsor can amend the plan to authorize additional participant allocations made to correct prior nonelective contributions that were made without regard to the compensation limits of IRC Section 401(a)(17).
The plan sponsor must submit a determination letter application before the end of the plan’s applicable remedial amendment period. Identify the corrective amendment in the cover letter.
Plan errors related to plan mergers and acquisitions
A significant failure related to:
- transferred assets from another plan, or
- assumption of a plan
in connection with a corporate merger, acquisition, or similar business transaction, can be self-corrected until the last day of the plan year that begins after the business transaction, even if the failure occurred more than two plan years earlier.
More on self-correcting plan errors:
- Self-correction of retirement plan errors
- Retirement plan errors eligible for self-correction
- Steps to self-correct retirement plan errors
- Timing of retirement plan self-correction
- FAQs regarding the self-correction program