Correct Your Retirement Plan Errors

A retirement plan helps you and your employees save money for retirement. However, plan errors can jeopardize your plan’s tax-favored status. Here are a few things you should know:

  1. How do plan errors happen?
  2. Why should I correct plan errors?
  3. How can I correct plan errors?
  4. Are there any resources to help me correct plan errors?

How do plan errors happen?

Despite your best intentions, different plan errors may happen. For example:

  • You don’t allow eligible employees to participate in the plan on time.
  • You don’t use the correct plan definition of compensation for certain plan operations (for example, contributions and nondiscrimination testing).
  • You miss the deadline to amend your written plan document for tax law changes.
  • A plan loan to a participant goes into default and you did not issue a Form 1099-R to report the deemed distribution.

To reduce the likelihood of plan errors, your plan should have internal controls.

Why should I correct plan errors?

Correct plan errors so that you and your employees can continue to receive the tax benefits of having a qualified retirement plan, including:

  • Your deduction (up to certain limits) for plan contributions
  • Your employees' tax deferral of their pre-tax contributions and earnings until distribution

See Tax Consequences of Plan Disqualification for additional information.

How can I correct plan errors?

Generally, there are two ways you can correct plan errors if your plan isn’t being audited and you’ve discovered the error on your own.

  1. Use the Self-Correction Program without paying any fee or notifying the IRS if:
    • your plan has sufficient compliance practices and procedures to avoid errors, and
    • the plan errors are insignificant operational mistakes, or significant operational mistakes or  that you correct within an IRS-specified timeframe.
       
  2. For failures fixed after April 19, 2019, SCP was expanded to permit:
    • The self-correction of certain plan document failures,
    • Correction options and possible relief from deemed distributions associated with certain, specified failures involving plan loans made to plan participants, and
    • Additional opportunities for correcting certain operational failures by plan amendment
       
  3. For any errors you can’t or don’t wish to correct under the Self-Correction Program, you can use the Voluntary Correction Program.
    • correct qualification failures (errors that affect your plan’s tax-favored status) with IRS approval, and
    • pay a user fee generally based on the amount of assets that are in the plan.

Are there any resources to help me correct plan errors?

You can use the Fix-It Guides to help you find, fix and avoid common mistakes in the following plan types:

  • 401(k)
  • 403(b)
  • SARSEP
  • SEP
  • SIMPLE IRA

Additional resources