Rev. Proc. 2021-30: Retirement Plan Correction Programs

Revenue Procedure 2021-30 provides guidance for the Employee Plans Compliance Resolution System (EPCRS), a framework from the Internal Revenue Service (IRS). This system allows sponsors of retirement plans, such as 401(k)s or 403(b)s, to correct specific failures. The goal of EPCRS is to encourage the timely correction of plan failures, which protects participating employees by ensuring they receive their expected retirement benefits. By addressing these errors, plan sponsors can continue to offer benefits on a tax-favored basis and maintain the plan’s qualified status.

Overview of Correction Programs

The EPCRS framework has three programs to address retirement plan failures: the Self-Correction Program (SCP), the Voluntary Correction Program (VCP), and the Audit Closing Agreement Program (Audit CAP). The appropriate program depends on the nature of the failure and when it is discovered.

The Self-Correction Program allows plan sponsors to correct certain plan failures internally without notifying the IRS or paying a user fee. In contrast, the Voluntary Correction Program is a formal process where a plan sponsor proactively discloses a failure to the IRS before an audit, submits an application, and pays a fee.

The third option, the Audit Closing Agreement Program, is used when the IRS discovers a plan failure during an audit. Under Audit CAP, the plan sponsor must correct the failure and pay a sanction. This program is generally more costly than SCP or VCP, which underscores the benefit of correcting errors proactively.

The Self-Correction Program (SCP)

To use the Self-Correction Program, a plan sponsor must have established practices and procedures designed to promote compliance with applicable laws; a formal plan document alone is not sufficient. The program addresses operational failures, which occur when the explicit terms of the retirement plan are not followed correctly. Under current guidance, most inadvertent failures may be self-corrected at any time after being identified, provided the IRS has not already discovered the failure.

Examples of an operational failure include mishandling a participant’s salary deferral election or improperly excluding an eligible employee from participation. In some cases, SCP permits correction through a retroactive plan amendment to align the written plan with its actual operations, provided certain conditions are met.

Required Information for a Voluntary Correction Program (VCP) Submission

For a Voluntary Correction Program submission, a plan sponsor must prepare a complete description of the failures being corrected. This includes the specific years the errors occurred, the number of employees affected, and an explanation of how and why the failures happened.

The submission must also include a detailed description of the proposed correction method. This section must include the specific calculations used to determine any corrective contributions, like missed employer contributions or earnings adjustments. The plan sponsor must also describe new administrative procedures being implemented to ensure the same failures do not happen again.

To complete the required forms, the sponsor will need the plan’s name, employer identification number (EIN), the three-digit plan number, and the plan’s total net assets. Specific details about the failure are also necessary.

The VCP Submission Process

The VCP submission process is handled electronically through the Pay.gov website. The application package includes Form 8950, Application for Voluntary Correction Program, Form 8951, Compliance Fee for Application for Voluntary Correction Program, and supporting documents.

As part of the online submission, the plan sponsor must pay the required user fee, also known as the compliance fee. The fee amount is determined by the plan’s total net assets and is paid through the Pay.gov platform.

After the submission is complete, the plan sponsor will receive an acknowledgment of receipt from the IRS. An agent may later contact the sponsor with additional questions. Upon approval, the IRS issues a formal Compliance Statement, which provides assurance that the plan will not be disqualified for the corrected failures.