The ABCs of IRS FAQs on EPCRS under SECURE 2.0
Augmented EPCRS
SECURE 2.0 significantly expands the EPCRS’s Self-Correction Program (SCP) for employer-sponsored retirement plans, letting plan sponsors self-correct any “eligible inadvertent failure” within a reasonable time after discovering the mistake and before Treasury identifies the error. Specifically, the act makes the following changes:
- Extended correction period. The statute states that the correction period for eligible inadvertent failures has no predetermined last day. Under the current SCP, insignificant operational errors have an indefinite correction period, but significant nonegregious errors may be self-corrected only within a limited window. The window generally ends three years after the year of the failure, with an additional year for actual deferral percentage (ADP) and actual contribution percentage (ACP) test violations. (Egregious errors may never be self-corrected.) The notice doesn’t indicate to what extent, if any, the “significant” and “insignificant” labels will be a factor under the SCP after IRS updates the EPCRS.
- Expanded availability for SEP and SIMPLE plans. SECURE 2.0 allows sponsors of simplified employee pension (SEP) plans and savings incentive match plans for employees of small employers (SIMPLE IRAs) to self-correct eligible inadvertent failures. Under the current EPCRS, SEP plan and SIMPLE IRA sponsors may use the SCP only for insignificant operational errors. (Sponsors of qualified and 403(b) plans may self-correct both insignificant and significant operational errors.)
- Plan loan errors. SECURE 2.0 expands the SCP to cover eligible inadvertent failures relating to plan loans. Sponsors currently may self-correct only loan errors relating to defaults, spousal consent and loans exceeding the maximum permissible number. The act also requires the Department of Labor (DOL) to treat any loan self-corrected under the expanded SCP as meeting the requirements of the Voluntary Fiduciary Correction Program (VFCP), subject to certain conditions.
- EPCRS for IRAs. The EPCRS is currently unavailable for correcting errors in IRAs (other than in SEP plans and SIMPLE IRAs), but SECURE 2.0 requires opening the program to IRAs. IRA custodians will be able to self-correct certain eligible inadvertent failures, including waivers of the excise tax on required minimum distributions (RMDs) and certain distributions to nonspouse beneficiaries.
Eligible inadvertent failures
Conditions for self-correction
Although SECURE 2.0’s deadline for self-correcting errors is indefinite, it isn’t infinite:
- A sponsor generally may not self-correct errors IRS identifies before the sponsor has taken any actions “demonstrating a specific commitment to implement a self-correction” for the failure.
- The self-correction must be completed within a “reasonable period” after the sponsor identifies the error.
Brand-new Q&As provide guidance
Correcting eligible failures
Errors that can’t be self-corrected (yet)
Until the EPCRS is updated, sponsors can’t self-correct certain errors, even if they otherwise fit the definition of eligible inadvertent failures. The notice lists nine categories of failures that can’t yet be self-corrected, including:
- A failure to adopt an initial written plan document
- A significant failure in a terminated plan
- A demographic failure — generally, a failure to satisfy the nondiscrimination requirements of IRC Sections 401(a)(4), 401(a)(26) or 410(b) that isn’t corrected by a retroactive amendment under Treas. Reg. Section 1.401(a)(4)-11(g)
- An operational failure corrected by a plan amendment that is less favorable to participants than the original plan terms
Errors that are no longer eligible
As noted above, SECURE 2.0 provides an indefinite correction period, but that period is nonetheless subject to limitations:
- Failures identified by IRS. The notice provides that a failure will be treated as having been identified by IRS as soon as the plan or plan sponsor comes under an Employee Plans examination (even if the error had not actually been identified as of that date). These errors can’t be self-corrected unless IRS determines that the sponsor had already demonstrated a commitment to self-correct before the plan audit began. IRS explains that this determination will be based on facts and circumstances, but the sponsor must generally be actively pursuing the correction. Completion of an annual compliance audit or adoption of a general statement to correct failures once they’re discovered will generally not suffice. However, a sponsor may continue to self-correct insignificant errors (as defined in Rev. Proc. 2020-31), even if it is under an IRS audit that reveals the failure.
- Errors not corrected within a reasonable period. Determining whether an error has been corrected within a reasonable period after the failure is identified will be based on facts and circumstances. For most errors, IRS considers a correction within 18 months after the failure is identified to be reasonable. However, for an employer eligibility failure — the adoption of a 401(k) plan by an employer that’s ineligible to do so — the employer must stop all contributions to the plan as soon as reasonably practical, but no later than six months after identifying the failure.
No tax waivers with self-correction
Other SECURE 2.0 changes not covered
Reliance
Comments requested
IRS requests comments on the notice and any other aspects of SECURE 2.0’s expansion of the EPCRS. The agency specifically asks for comments on:
- Additional methods for correcting eligible inadvertent failures, including general correction principles that would apply in the absence of a specific correction method
- A description of common IRA failures and suggested correction methods, and the possibility of expanding the EPCRS to include IRA owners as well as custodians
Related resources
Non-Mercer resources
- Notice 2023-43 (IRS, May 25, 2023)
- Div. T of Pub. L. No. 117-328, the SECURE 2.0 Act of 2022 (Congress, Dec. 29, 2022)
- Rev. Proc. 2021-30 (IRS, July 16, 2021)
Mercer Law & Policy resource
- User’s guide to SECURE 2.0 (March 7, 2023)