Special Rules for Self-Correction of Retirement Plan Errors


The rules below cover special situations for correcting certain plan mistakes.  

ADP and ACP test corrections

The three-year period to self-correct ADP or ACP testing violations begins after the end of the 12-month correction period in the 401(k) and (m) regulations.

Example: Plan A failed the ADP test for the plan year ending December 31, year 1. Plan A can correct the failed ADP test, without using the SCP, during the regulatory correction period ending December 31, year 2. Plan A’s self-correction period for the ADP failure is three plan years beyond the end of the regulatory correction period, ending on December 31, year 5.

Correction via plan amendment in limited circumstances

A plan sponsor may self-correct an operational mistake, in limited circumstances, by amending the plan document to match the terms of the plan to the plan’s prior operations. See Revenue Procedure 2021-30PDF, section 4.05 for specific information. Generally, you may be able to amend your plan to correct the following problems:

  • A defined contribution plan that allocated contributions or forfeitures based on a participant’s compensation that exceeded the Section 401(a)(17) limit. 
    • You amend the plan to reflect the higher contribution percentage for the other participants
  • Participant loans and hardship distributions were made even though the plan’s written terms didn’t permit them.
    • You may amend the plan retroactively if loans or hardship distributions were mostly made to participants who were nonhighly highly compensated employees, if
    • Loans were made according to the limits in Section 72(p), or
    • Hardship distributions complied with the 401(k) rules
  • Included an employee before they meet the plan’s minimum age or service requirements or entered the plan earlier than the plan’s entry date
    • Retroactive amendment allowed if employees affected by the amendment are mainly nonhighly compensated employees

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).

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 three plan years earlier.

More on self-correcting plan errors:

Additional resources