IRS officials review plan correction procedures, offer tips

Rev. Proc. 2013-12 expanded the plan correction options available to retirement plan sponsors, said Stephanie Bennett, IRS Voluntary Compliance Program Coordinator Availability, during a September 4, 2014 IRS webinar that reviewed current retirement plan programs, procedures and principles. Rev. Proc. 2013-12 updated the system of correction programs available to sponsors of retirement plans that were intended to meet the requirements under Code Secs. 401(a), 403(a), 403(b), 408(k) or 408(p).

“Prior to the issuance of this revenue procedure, we realized that there were limitations regarding what failures were eligible for correction,” Bennett said. Bennett explained that, whereas correction options for 403(b) plan failures were somewhat limited under Rev. Proc. 2008-50, the IRS can now accept applications to correct plan document failures and failures to operate in accordance with plan terms (after January 1, 2009). “Another thing to note for 403(b) plans is that sponsors do not have to amend their plan documents until after the commencement,” said Bennett.
“Another change is that the new revenue procedure, in a limited way, allows us to address outside of the Employee Plans Compliance Resolution System (EPCRS) certain issues in 457(b) plans sponsored by tax-exempt organizations,” Bennett added.

Rev. Proc. 2013-12 also provides consistent safe harbor correction methods for missed deferrals in 403(b), SIMPLE IRA, and 401(k) plans. The revenue procedure also provides for the correction of operational failures involving Code Sec. 436 restrictions. “Additional contributions may be required for the plan sponsor to get around the 436 restriction so that proposed corrections can be implemented,” according to Bennett.

Plan documentation tips

Later in the program, Avaneesh Bhagat, manager, IRS Voluntary Compliance Group, offered several tips for maintaining good plan documentation that could be crucial for correction.
“The first suggestions is to maintain plan records,” he said. He also recommended that sponsors keep time documents, plan amendments, IRS determination letters, plan-related communications, such as board of directors resolutions, and communications between employer and service provider. “All of these basically give you a good document trail. And a good document trail will enable you to determine when the plan first came into existence, whether the plan was amended for law changes, and the benefits provided by the plan at different points in time,” he added.

VCP application tips

Bhagat listed several common issues that can impair a sponsor’s application to the Voluntary Correction Program (VCP)—one of the three correction programs in the EPCRS. He explained that the IRS did not want to see applications become bogged down in the correction process due to procedural mistakes.

“First, [before submitting a Form 8950, Application for Voluntary Correction Program (VCP)] it’s very important that you complete all the questions outlined in the Form 8950,” Bhagat stressed. “In addition to that, the 8950 also provides you a checklist that is helpful to you for purposes of making a complete submission. You can complete it and include it or you don’t have to; it’s just meant to be a helpful tool. However, it is important that you answer all of the questions completely and correctly.”

Bhagat added that Form 8951, Compliance Fee for Application for Voluntary Correction Program (VCP), must also be completed correctly. “It’s very important that the form is completed along with sending the appropriate check for the fee,” he said. “Even though it’s stating the obvious, it’s really important that these forms be completed as part of your submission.”

Source: Rev. Proc. 2013-12.

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