Even with the best of intentions, errors may occur. Catching your error is the first step – calling us for help with the fix is your next. Whether the problem lies in the administration of the plan or in the plan itself, correction is key. Not following the plan terms can result in disqualification and negate any associated tax benefits.
While avoiding errors altogether is ideal, the Internal Revenue Services (IRS) has processes in place to assist with corrections when errors are found. We can help you correct the errors internally, through the IRS’s Voluntary Compliance Program in the Employee Plans Compliance Resolution System (EPCRS).
Regardless of who discovers the error – you, the Department of Labor (DOL), or the IRS – you have options regarding the correction process.
- Self-Correction Program (SCP). Self-correction is an option when the scenario involves an "insignificant operational error" or an error that is significant but has been detected early. There is typically no IRS penalty associated with self-correction.
- Voluntary Compliance Program (VCP). VCP is an option if your plan is not currently being audited but involves an error that could cause the plan to lose its tax-favored status. With VCP, a compliance fee is levied (up to $20,000), the error must be corrected, and the plan is allowed to retain its tax-favored status.
- Audit Closing Agreement Program (Audit CAP). In those instances when the error is caught during an audit, there is still an option to correct the error and maintain the plan’s benefits, yet the associated IRS sanction is far more severe.
Errors in retirement plans are serious problems that the government investigates aggressively. When errors are uncovered, you have breached your fiduciary duty and must correct any problems, fund the plan accordingly, and pay any associated penalties.
The Bottom Line: We can guide you through the correction process, proactively addressing the problem(s) and working with the IRS or DOL to obtain an exemption or corrections clearance, ensuring that the corrections will be appropriate and that the plan will once again be in compliance.