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EPCRS Overview

If you make mistakes with respect to your plan, you may use the IRS Employee Plans Compliance Resolution System (EPCRS) to remedy your mistakes and avoid the consequences of plan disqualification (or the consequences of disqualification of the 403(b) annuity contracts or custodial accounts of employees in the case of a 403(b) plan). A correction for a mistake should be reasonable and appropriate. The correction method should resemble one already provided for in the Internal Revenue Code and you should consider all facts and circumstances. Revenue Procedure 2016-51 is the guidance governing the EPCRS program.

There are three ways to correct mistakes under EPCRS:

  1. Self-Correction Program (SCP) - permits a plan sponsor to correct certain plan failures without contacting the IRS or paying any fee.
  2. Voluntary Correction Program (VCP) - permits a plan sponsor to, any time before audit, pay a fee and receive IRS approval for correction of plan failures.
  3. Audit Closing Agreement Program (Audit CAP) - permits a plan sponsor to pay a sanction and correct a plan failure while the plan is under audit.

A general description of each program under EPCRS is provided below.

Self-Correction Program:

  • To be eligible for SCP, the plan sponsor or administrator must have established practices and procedures (formal or informal) reasonably designed to promote and facilitate overall compliance with the law. A plan document alone does not constitute evidence of established procedures.
  • SCP is only available for correcting operational problems - the failure to follow the terms of your plan. SCP is not available for problems with the plan document, such as the failure to keep it current to reflect changes in the law. Revenue Procedure 2016-51, Section 8 describes the factors to consider when determining whether operational failures are insignificant. The plan sponsor should follow general correction principles in Revenue Procedure 2016-51, Section 6.
  • For 403(b) operational failures that occurred in 2008 and earlier years, you must follow the definition of an operational failure in Revenue Procedure 2008-50 Section 5.02. SCP is not available for other types of problems, such as the failure to adopt a written plan or to keep your written program current to reflect law changes. Nor is SCP available if you determined that your organization is ineligible to maintain a 403(b) plan.
  • 403(b) plan sponsors should follow the general correction principles in Revenue Procedure 2016-51 for 2009 and subsequent years and 2008-50 for 2008 (and earlier) plan years.
  • The plan sponsor should follow the general correction principles in Revenue Procedure 2016-51, Section 6.
  • A plan sponsor that corrects a mistake listed in Appendix A or Appendix B of Revenue Procedure 2016-51 according to the correction methods listed may be certain that their correction is reasonable and appropriate for the failure.
  • If needed, the plan sponsor should make changes to its administrative procedures to ensure that the mistakes do not recur.
  • A qualified plan sponsor (not including a SEP or SIMPLE IRA plan sponsor) may correct significant operational failures within two years of the end of the plan year in which the operational failures occurred.
  • The SCP may be used if, considering all of the facts and circumstances, the mistakes, in the aggregate, are insignificant operational failures.
  • When using SCP, the plan sponsor should maintain adequate records to demonstrate correction in the event of an audit of the plan.
  • There is no fee for self-correction.

Voluntary Correction Program:

  • The plan sponsor makes a submission to the IRS that:
    • includes completed Forms 8950 and 8951,
    • identifies the mistakes,
    • proposes corrections using the general correction principles in Revenue Procedure 2016-51, section 6,
    • proposes changes to its administrative procedures to ensure that the mistakes do not recur,
    • pays a user fee,
    • may include Form 14568, Model VCP Compliance Statement, and Forms14568-A through 14568-I (Schedules), and
    •  acknowledgement letter (Letter 5265) to assist applicants making a VCP submission.
  • The IRS issues a Compliance Statement detailing mistakes identified by the plan sponsor and the correction methods approved by the IRS.
  • The plan sponsor corrects the identified mistakes within 150 days of the issuance of the Compliance Statement.
  • While the IRS is processing the submission, Employee Plans will not audit the plan, except under unusual circumstances.

Audit Closing Agreement Program:

  • The plan sponsor or plan is under audit.
  • The plan sponsor:
    • enters into a Closing Agreement with the IRS.
    • makes correction prior to entering into the Closing Agreement.
    • pays a sanction negotiated with the IRS. It will not be excessive and will bear a reasonable relationship to the nature, extent, and severity of the failures.
      • The sanction is determined based on facts and circumstances, including the following relevant factors
        • The presence of internal controls designed to ensure that the plan had no failures or that such failures were identified and corrected in a timely manner;
        • Number of affected employees;
        • Impact on non-highly compensated employees;
        • whether it’s a demographic failure or an employer eligibility failure;
        • Length of time failure occurred;
        • The reason for the failure;
        • The Maximum Payment Amount as defined in sections 5.01, 5.02 of Rev. Proc. 2016-51;
        • See Rev. Proc. 2016-51, section 14 for additional details and factors
      • The sanction paid under Audit CAP should be not be less than the fee paid under VCP.

401(k) Plan Fix-It Guide
SEP Fix-It Guide
SIMPLE IRA Plan Fix-It Guide
SARSEP Fix-It Guide
403(b) Plan Fix-It Guide
IRA-Based Plans Additional Resources

IRS.gov / Retirement Plans / Correcting Plan Errors / SEP Fix-It Guide/ EPCRS Overview