The Internal Revenue Service has offered more ways for employers to make voluntary corrections in their employee retirement plans to bring them into compliance with tax laws and regulations.
Under the Employee Plans Compliance Resolution System, plan sponsors and plan professionals can correct certain errors in employee retirement plans, in some cases without having to notify the IRS. Correcting plans in this way allows participants to continue receiving tax-favored retirement benefits and protects the retirement benefits of employees and retirees.
There are three levels of correction programs:
* The self-correction program permits a plan sponsor to correct insignificant operational failures in plans such as qualified plans, 403(b) plans, SEPs or SIMPLE IRA plans without having to notify the IRS and without paying any fee or sanction.
* The voluntary correction program allows a plan sponsor, at any time before an audit, to pay a limited fee and receive the IRS's approval for a correction of a qualified plan, a 403(b) plan, SEP or SIMPLE IRA plan.
* The audit closing agreement program allows a sponsor to correct a failure or an error that has been identified on an audit and pay a sanction based on the nature, extent and severity of the failure being corrected.
The new guidance makes the following improvements:
* expands the availability of the self-correction program in situations where operational mistakes have been partially corrected when the plan comes under examination.
* establishes streamlined application procedures under the voluntary correction program for numerous issues, including failure to amend plans for law changes, loan problems, failure to make minimum distributions to participants, excess elective deferrals made by participants to 401(k) plans, and plans established by ineligible employers. In addition, streamlined application procedures have been developed for SEPs, SARSEPs and SIMPLE IRAs.
* includes a sample application format that may be used for all other voluntary correction program applications.
* makes it easier to correct loan failures under the voluntary correction program. Loans that violate Section 72(p) of the Tax Code may still be corrected even if the loans do not violate the terms of the plan. Also, in many cases, the fee for correcting loan failures will be reduced by 50 percent.
