Plan Correction Programs and Voluntary Compliance
The Correction Framework
EPCRS is the IRS program for correcting qualification failures. It has three components: Self-Correction (SCP), Voluntary Correction Program (VCP), and Audit Closing Agreement Program (CAP). The DOL has a parallel Delinquent Filer Voluntary Compliance Program for late 5500 filings and a Voluntary Fiduciary Correction Program for fiduciary breaches.
Self-Correction
SCP allows correction of certain failures without IRS involvement, generally for insignificant failures or significant failures corrected within a specified period. VCP requires a submission and fee. CAP applies when the IRS discovers a failure on audit.
Correction Methods
Correction generally requires restoring the plan to the position it would have been in had the failure not occurred. This often means corrective contributions, reallocations, or distribution adjustments. The correction should be documented.
Traps to Watch
- Assuming all failures can be self-corrected; some require VCP.
- Missing that correction must restore both contributions and earnings.
- Forgetting that the DOL and IRS programs are separate; a late 5500 filing is a DOL issue, not an EPCRS issue.
- Overlooking documentation requirements.
Rule of Thumb
Identify the failure type, then the correction program, then the correction method. Restore the plan to the position it would have been in.