Steps to Self-Correct Retirement Plan Errors
There is no fee for self-correction of retirement plan errors. Nothing needs to be filed with the IRS. However, the plan sponsor should maintain adequate records to demonstrate correction in the event of a plan audit.
Steps to self-correct
- Make sure that you’re eligible to self-correct. Is the failure eligible for self-correction, and did your plan have appropriate practices and procedures?
- Make any necessary corrections to put the participants in the position they would have been in if the error had not occurred.
- Document the steps you took to correct the error.
- Adjust your administrative procedures, if necessary, to make sure the mistake does not happen again.
Use a reasonable and appropriate self-correction method. Follow the general correction principles described in the IRS correction program revenue procedure’s Section 6. If you use one of the correction methods described in the examples in Appendix A or B of the revenue procedure, the IRS will automatically treat it as reasonable and appropriate.
Changes to administrative procedures
If needed, the plan sponsor should make changes to its administrative procedures to ensure that the mistakes don’t happen again.
Prompt correction is best
Despite all of your good efforts, mistakes can happen. Conducting periodic reviews of the plan’s operation and promptly fixing operational failures after they are discovered can reduce the cost of correction.
More on self-correcting plan errors:
- Self-correction of retirement plan errors
- Retirement plan errors eligible for self-correction
- Timing of retirement plan self-correction
- Special rules for self-correction of retirement plan errors
- FAQs regarding the self-correction program