Self-Correction Program (SCP) FAQs

 

The SCP is one of three programs for correcting retirement plan errors that together are called the Employee Plans Compliance Resolution System (EPCRS). The other EPRCS programs are the Voluntary Correction Program (VCP) that requires a written submission to the IRS and the Audit Closing Agreement Program (Audit CAP) that’s used to correct significant failures discovered on examination or during the determination process.

You can self-correct an insignificant operational error at any time to preserve the tax-favored status of your plan. An operational error occurs when you don’t follow the written terms of the plan. Even where the operational error is significant, you may still be able to self-correct if action is taken in a timely manner. It’s also possible to self-correct some plan document failures if certain conditions can be met.

For more information on the Self-Correction Program, see Self-correction of retirement plan errors.

These FAQs provide general information and shouldn’t be cited as legal authority.


  1. Can I restore my plan’s qualified status without making a VCP submission to the IRS under EPCRS?
  2. Can I ever self-correct a plan error past the three-year correction period and still not have to make a VCP submission?
  3. What are insignificant operational failures under the SCP?
  4. Can I call or write the IRS and ask if my failure is insignificant?
  5. What practices and procedures must be in place to be eligible for relief under the SCP?
  6. Is there a way to get IRS approval before an examination on the appropriate way to correct a failure under the SCP?
  7. When self-correcting significant operational failures, what actions must a plan sponsor take by the end of the three-year correction period?
  8. Can a failure of the Actual Deferral Percentage (ADP) or Actual Contribution Percentage (ACP) tests in a 401(k) plan be corrected under the SCP?
  9. If a vesting failure occurs in which the plan terms were not followed, should the plan sponsor use SCP or the Voluntary Correction Program to correct the problem?
  10. Can I fix plan document failures under SCP and if yes, what are the conditions?

1. Can I restore my plan’s qualified status without making a VCP submission to the IRS under EPCRS?

Yes, in many cases you can restore your plan's qualified status by self-correcting the failure before the last day of the third plan year following the plan year for which the failure occurred.

Example: XYZ Company established a money purchase pension plan in 2004 and received a favorable determination letter. During 2019, while doing a self-audit of the operation of the plan for the 2016 plan year, the plan administrator discovered that, despite its established practices and procedures, XYZ Company failed to make the required contribution to the plan. XYZ Company is a calendar year taxpayer and the due date of its tax return is March 15th. XYZ Company filed a six month extension for this return. The due date of the contribution for the 2016 plan year was September 15, 2017. XYZ Company did not make this contribution at this time. Upon discovering the error, XYZ Company made the required contribution by the end of the 2019 plan year. The contribution was credited with earnings at a rate appropriate for the plan from the date the contribution should have been made to the date of correction. By making this corrective contribution before the end of the 2019 plan year, the plan met the requirements of self-correction and would retain its qualified status.

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2. Can I ever self-correct a plan error past the 3-year correction period and still not have to make a VCP submission?

It depends. You can go beyond the 3-year correction period if the amount of the contribution is “insignificant.” EPRCS states that an insignificant operational failure can be corrected at any time. Self-correction is available for correcting an insignificant operational failure even if the plan or plan sponsor is under examination and even if the operational failure is discovered on examination. For a list of the factors to consider in determining if an operational failure is insignificant, see the discussion below and Retirement Plan Errors Eligible for Self-Correction. However, eligible plan document failures are always considered “significant” and must be corrected within the 3-year correction period.

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3. What are insignificant operational failures under the SCP?

The SCP permits plan sponsors to correct significant operational failures within three years of the year in which the failure occurred, provided the other requirements of the SCP are satisfied, while insignificant failures can be self-corrected at any time. Examples of factors that are considered in determining if operational failures are insignificant include:

  • other failures that occurred during the year(s) being examined (for this purpose, a failure is not considered to have occurred more than once just because more than one participant is affected by the failure);
  • the percentage of plan assets and contributions involved in the failure;
  • the number of years the failure occurred;
  • the number of participants affected compared to the total number of participants in the plan;
  • the number of participants affected as a result of the failure compared to the number of participants who could have been affected by the failure;
  • whether correction was made within a reasonable time after the failure is found; and
  • the reason for the failure (for example, data errors or minor math errors).

This list does not contain all possible factors. No single factor is used to determine the significance of the failure. Failures will not be considered significant just because they occur in more than one year. In addition, the IRS will apply these factors in a way that will not prevent small businesses from being eligible for the SCP just because of their size.

The following examples illustrate how to apply the factors. Each example assumes that the SCP eligibility requirements have been met and that the plan has no operational failures other than those identified below.

Example 1: Employer X established Plan A, a profit-sharing plan. In 2016, the plan properly limited benefits under Section 415(c) for 50 of the 250 participants in Plan A. However, the IRS examined Plan A in 2018 and found that the annual additions allocated to the accounts of 3 employees exceeded the maximum allowed under Section 415(c) for 2016. Employer X contributed $3,500,000 to the plan for the plan year. The Section 415(c) excess totaled $4,550. Under these facts, the number of participants affected by the failure compared to the total number of participants who could have been affected by the failure was not large. Also, the amount of the failure compared to the total employer contribution for 2016 was insignificant. The factors show that the Section 415(c) failure that occurred in 2016 for Plan A was insignificant and would be eligible for self-correction even though the plan was under examination. 

Example 2: The facts are the same as in Example 1, except that the failure to satisfy Section 415 occurred during the 2014, 2015, and 2016 limitation years. In addition, the three participants affected by the Section 415 failure were not the same each year. The fact that the Section 415 failures occurred during more than one year did not cause the failure to be significant; accordingly, the failures are still eligible to be self-corrected using SCP even though the plan was under examination.

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4. Can I call or write the IRS and ask if my failure is insignificant?

No, the IRS will not give an opinion as to whether or not the operational error is insignificant (unless the plan is under an Employee Plans examination). You make the determination that an error is insignificant. If you want to be sure that the plan is still qualified, consider making a submission under the Voluntary Correction Program.

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5. What practices and procedures must be in place for a plan to be eligible for relief under the SCP?

The practices and procedures of a plan should promote compliance with the requirements of the Internal Revenue Code.

  • Practices and procedures may be formal or informal.
  • Practices and procedures must be routinely followed.
  • Practices and procedures do not need to be in place for a specific failure (as long as practices and procedures exist that show an overall effort on the part of the plan sponsor to comply with the Internal Revenue Code requirements).
  • A plan document alone is not enough to establish evidence of good practices and procedures.
  • An example of an acceptable practice or procedure is routinely using a check sheet to determine if an employee is a key employee for the top-heavy requirements.

See also retirement plan operation and maintenance.

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6. Is there a way to get IRS approval before an examination on the appropriate way to correct a failure under the SCP?

The SCP is a voluntary employer-initiated program that does not involve IRS approval; therefore, the IRS will not approve a plan sponsor's method of correction prior to examination. However, Revenue Procedure 2021-30PDF contains general correction principles designed to assist a plan sponsor in determining the appropriate method of correction for a failure. In addition, Appendix A and Appendix B of Revenue Procedure 2021-30 provide sample correction methods for certain failures. If the plan sponsor uses the applicable correction method shown in either of these appendices, the IRS will consider the correction a reasonable and appropriate correction for the failure. If the plan is examined, the IRS has the right to review that the plan was eligible for self-correction and that the correction method was acceptable.

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7. When self-correcting significant operational failures or eligible plan document failures, what actions must a plan sponsor take by the end of the three-year correction period?

In general, correction must be completed by the end of the three-year correction period for a plan to be entitled to relief under the SCP. However, if a plan sponsor substantially completes correction of operational failures within the correction period, they will not lose the relief provided under the SCP just because correction wasn’t completed during the correction period.

There are two circumstances where correction is considered to have been substantially completed:

Situation 1

  • during the correction period, the plan sponsor is reasonably quick in identifying the operational failure, formulating a correction method, and initiating correction in a way that demonstrates a commitment to completing correction of the operational failure as quickly as possible; and
  • within 120 days after the last day of the correction period, the plan sponsor completes correction of the operational failure.

Situation 2

  • during the correction period, correction is completed with respect to 65% of all participants affected by the operational failure; and
  • after the correction period, the plan sponsor completes correction of the operational failure with respect to the remaining affected participants in a diligent manner.

In addition, a plan sponsor will not be considered to have failed to fully correct within the correction period where a plan sponsor takes reasonable action to find but has not located all current and former participants and beneficiaries to whom additional benefits are due. Reasonable action includes a commercial locator service, a credit reporting agency or internet search tools. If an individual is later located, the additional benefits must be provided to the individual at that time.

For plan document failures, the substantially completed rules do not apply. All corrective plan amendments that resolve eligible plan document failures must be adopted with the three-year correction period to be eligible for SCP.

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8. Can a failure of the Actual Deferral Percentage (ADP) or Actual Contribution Percentage (ACP) tests in a 401(k) plan be corrected under the SCP?

Yes. A failure of the ADP or ACP tests is treated as an operational failure for purposes of EPCRS. Under IRC Sections 401(k) and (m), a plan sponsor has until the end of the plan year following the plan year in which an excess contribution or excess aggregate contribution was made to correct the failure. The three-year self-correction period that applies to significant operational failures does not begin until the expiration of the statutory correction period.

Example: In 2019, a calendar year 401(k) plan sponsor discovers that, when testing its 2016 contributions for the ADP test, mistakes were made in determining the correct amount of compensation that should have been taken into account under the test. When the ADP test was rerun with the correct data, the plan sponsor discovers that the ADP test was failed. Assuming the other eligibility requirements of the Self-Correction Program are met, if the ADP failure is a significant operational failure, the plan sponsor may correct the failure to satisfy the ADP test by the end of the 2019 plan year. If the ADP failure is an insignificant operational failure, the plan sponsor has even longer to correct the failure, and may correct even upon examination of the plan.

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9. If a vesting failure occurs in which the plan terms were not followed, should the plan sponsor use SCP or the Voluntary Correction Program to correct the problem?

The decision of whether to use the SCP or Voluntary Correction Program to correct an operational failure depends on a number of factors, including: (1) the type of failure involved, (2) the practices and procedures under the plan, (3) whether the failure is significant, (4) whether a favorable letter has been issued with respect to the plan, (5) whether the failure is egregious, (6) when the failure is discovered, and (7) the amount of comfort the plan sponsor has with the method used to correct the failure.

For a vesting failure, acceptable correction methods are described in Appendix B, section 2.03 of Revenue Procedure 2021-30. If the plan sponsor uses one of the two correction methods for vesting failures described in the revenue procedure, it will have assurance that the IRS will find that correction method acceptable and the plan would be entitled to relief under the SCP with respect to its correction method. If the plan sponsor has acceptable practices and procedures and the failure is insignificant, the plan sponsor may use the SCP to correct the failure at any time, even if the plan is under examination. If the failure is significant, the plan would be entitled to correct under the SCP only if the failure is identified and corrected within the three-year correction period under the SCP and only if a favorable letter has been issued with respect to the plan. If the failure is considered egregious, it would be eligible for correction under the Voluntary Correction Program, but not under the SCP.

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10. Can I fix plan document failures under SCP and if yes, what are the conditions?

Yes, some plan document failures corrected on or after April 19, 2019, may be eligible for correction under SCP if certain conditions are met.

Applies only to IRC 401(a) (including 401(k)) and IRC 403(b) retirement plans.

Plan document failures are considered a significant failure that must be corrected within the three-year correction period specified in Rev. Proc. 2021-30, section 9. For example, in the case of a plan document failure, the failure begins in the plan year that includes the end of the applicable remedial amendment period.

Plans must have a favorable letter as defined in Rev. Proc. 2021-30, section 5.01, for IRC 401(a) plans and section 6.10(2) for IRC 403 (b) plans. For an individually designed qualified plan, a favorable letter is a determination letter issued on the plan. For a pre-approved plan, a favorable letter is an opinion or advisory letter issued on the pre-approved plan document for the most recently expired six-year remedial amendment cycle.

SCP is not available to correct a failure to timely adopt an initial IRC 401(a) plan document, or a failure to adopt an initial written 403(b) plan within the timeframes and requirements specified in Notice 2009-3 and Income Tax Regulation 1.403(b)-3(b)(3).

Corrective amendments to resolve demographic failures that were not timely adopted are not eligible for SCP and must be resolved under VCP or Audit CAP.

The late adoption of discretionary amendments is not considered a plan document failure.

Refer to Rev. Proc. 2021-30, sections 4.01, 4.03, 4.04 and 4.05 for program eligibility requirements.

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