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Fixing retirement plan mistakes just got a little easier
By Heather Mehta on April 23, 2019 at 9:40 AM

Pencil draws a straight line on paper and pencil eraser removing the lineThe Internal Revenue Service has updated the Employee Plans Compliance Resolution System (EPCRS) to allow for the self-correction of more failures. EPCRS is a program that allows plan sponsors to correct errors involving qualified plans (such as 401(k) plans, profit sharing plans, defined benefit pension plans, etc.) and certain other types of plans that, if left uncorrected, could jeopardize the tax-favored status of the plan. Revenue Procedure 2019-19 expands the self-correction program to include correction of certain loan failures and more corrections via retroactive amendment.

Plan loan failures are common in 401(k) plans, and now many can be corrected without the need to seek formal IRS approval through the Voluntary Compliance Program. The following table summarizes the loan failures, correction methods and conditions:



Correction under SCP


1. The loan does not meet the exceptions of IRC 72(p)(2) or is in default that is not corrected under section 6.07(3).

  • Report deemed distribution in the year of correction instead of the year of the failure.
  • Follow IRS Regs. 1.72(p)-1 in terms of reporting the deemed distribution amount on Form 1099-R.
  • If withholding applies under IRS Regs. 1.72(p)-1 (Q&A 15), it must be paid by the plan sponsor.

2. Defaulted loans.

  • Participant makes a single lump sum payment that includes all missed payments, including accrued interest; or
  • The outstanding balance of the loan, including accrued interest, is reamortized over the remaining period of the loan so that the unpaid principal and accrued interest is repaid by the end of original term of the loan or by the end of the maximum period under IRC 72(p)(2)(B), measured from the original date of the loan.
  • The two correction methods listed above can be combined.
  • This correction method is not available if the maximum period for repayment of the loan pursuant to IRC 72(p)(2)(B) has expired.
  • The participant must be willing to take actions to fix the defaulted loan.
  • Avoids deemed distribution.
  • No need to issue a Form 1099-R.
  • The employer should make a corrective contribution to the participant’s account if the plan’s rate of return exceeded the plan loan interest rate.

3. Failure to obtain spousal consent for a plan loan as required by plan terms.

  • Notify affected participant and the participant’s spouse (who was married to the participant at the time of the loan).
  • Obtain spousal consent to the plan loan.
  • If spousal consent can’t be obtained, SCP is not available.
  • Correction may be available under VCP or Audit CAP

4. Number of plan loans to a participant exceeds the number of loans permitted by written plan terms.

  • Adopt a retroactive plan amendment to conform the written plan document to the plan’s operation.
  • The plan, as amended, must satisfy the IRC 72(p) requirements applicable to plan loans.
  • Amendment must comply with IRC 401(a) requirements.
  • Plan loans in excess of the number permitted by the plan were available to all participants or solely to one or more non-highly compensated employees


Revenue Procedure 2019-19 also allows plan sponsors to self-correct an operational failure in which the plan was not operated according to its terms through retroactive amendment to conform the plan terms to its operations. However, to qualify for self-correction, the retroactive amendment must result in an increase in participants’ benefits, rights or features.

The rules for fixing plan mistakes are complex. Consult with your benefits counsel before proceeding with any correction method. Revenue Procedure 2019-19 is effective April 19, 2019.

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