Improving the Employee Plans Compliance Resolution System

by JulieAnn C. Verrekia, CPA | Dec 21, 2021

pa-cpa-journal-improving-the-employee-plans-compliance-resolution-systemWhen acting as an administrator to an employee benefit plan, or an auditor of such, it is almost inevitable that you will become aware of a plan failure. The IRS describes a failure as those plans that are intended to satisfy the requirements of Internal Revenue Code (IRC) Sections 401(a), 403(a), 408(k), or 408(p), but have not met those requirements for a period of time. The Employee Plans Compliance Resolution System (EPCRS) was established to permit plan sponsors to correct failures and continue to provide employees with retirement benefits on a tax-favored basis.

In other words, if a plan sponsor makes a mistake in a retirement plan, the plan sponsor can turn to EPCRS to fix the mistake and avoid plan disqualification. (Consult the EPCRS overview on IRS’s website for more information regarding EPCRS.1) The premise is that the correction should be reasonable and appropriate.

The IRS annually shares the top 10 failures found in the EPCRS Voluntary Correction Program (VCP). This list may be helpful to plan sponsors conducting a self-check of plan operations and administration. The IRS published the latest list in October 2020. The top 10 failures found in VCP are as follows:

  • Failure to amend the plan for tax law changes by the end of the period required by law
  • Failure to follow the plan’s definition of compensation for determining contributions
  • Failure to include eligible employees in the plan or the failure to exclude ineligible employees from the plan
  • A plan sponsor’s failure to withhold loan payments in accordance with the IRC
  • Impermissible in-service withdrawals
  • Failure to make required minimum distributions in accordance with the IRC
  • Employers who adopt a plan that they are not legally permitted to adopt
  • Failed IRC compliance tests not corrected in a timely manner
  • Failure to follow IRC top-heavy rules
  • Failure to satisfy IRC annual contribution limits

In July 2021, the IRS issued Revenue Procedure (Rev. Proc.) 2021-30, which made significant revisions to EPCRS. Here are Rev. Proc. 2021-30’s more significant revisions to EPCRS:

  • Corrections of overpayment (defined benefit plans) – EPCRS currently allows plan sponsors to fix operational failures when plan participants or beneficiaries receive payments from defined benefit plans that exceed what is permitted by the terms of the plan. Plans often encounter difficulties recouping overpayments. Rev. Proc. 2021-30 clarifies repayment options and provides two new overpayment correction methods that reduce the need to seek recoupment from overpayment recipients: the funding exception correction method and contribution correction method.
  • Expansion of self-correction for significant operational failures – Extends the correction period of significant operational failures from two to three years, effective July 16, 2021.
  • Expansion of self-correction for retroactive plan amendments – Simplifies the use of retroactive plan amendments to correct operational failures by removing the requirement that all participants in the plan benefit by the retroactive amendment, effective July 16, 2021.
  • Anonymous VCP submissions – Effective Jan. 1, 2022, Rev. Proc. 2021-30 eliminates anonymous submissions under VCP.
  • Anonymous presubmission conferences – Effective Jan. 1, 2022, the IRS will permit plan sponsors or their representatives to make an anonymous written request for a presubmission conference to discuss a potential VCP submission at no cost to the plan sponsor.
  • Extension of automatic enrollment failures – Extends the sunset of the safe-harbor correction method to correct missed elective deferrals for eligible employees subject to an automatic contribution feature in Section 401(k) or 403(b) plans from Dec. 31, 2020, to Dec. 31, 2023.
  • Increased threshold for de minimis correction amounts – Increases from $100 to $250 the threshold for certain de minimis amounts for which a plan sponsor is not required to implement a correction.
  • Overpayments (defined contribution plans) – Modifies the structure of the EPCRS sections regarding overpayments in defined contribution and 403(b) plans to be more consistent with the changes made to the sections pertaining to overpayments for defined benefit plans. Also, it clarifies the correction principles relating to overpayments from defined contribution plans and 403(b) plans.

Plan sponsors and plan auditors should familiarize themselves with the principles of the EPCRS and Rev. Proc. 2021-30. The full text of Rev. Proc. 2021-30 is available online.2


JulieAnn C. Verrekia, CPA, is director, quality control, with Torrillo & Associates LLC in Glen Mills and a member of the Pennsylvania CPA Journal Editorial Board. She can be reached at

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