IRS expands Self-Correction Program

Last week, the Internal Revenue Service (IRS) expanded opportunities to use the Self-Correction Program (SCP), permitting Plan Sponsors to correct certain Plan Document Failures and plan loan failures.

Revenue Procedure 2019-19 expanded use of the SCP, which will allow Plan Sponsors to correct the following:

• Defaulted plan loans

• Failure to obtain spousal consent

• Loans not satisfying certain exceptions under IRC 72(p)(2)

• The number of plan loans that exceed the number of plan loans permitted under the written plan terms

Significantly, under the IRS Employee Plans Compliance Resolutions System (EPCRS), Plan Sponsors have three avenues to identify and correct plan failures. To correct plan failures, a Plan Sponsor may, in certain cases, self-correct under the SCP, use the Voluntary Correction Program or correct when under an Audit CAP. 

With the issuance of Revenue Procedure 2019-19, the IRS has created more opportunities for Plan Sponsors to fix certain Plan Document and Operational Failures without having to file a VCP submission, which is more favorable, since corrections made under the SCP are not subject to fee or sanctions by the IRS.

Other takeaways from Revenue Procedure 2019-19

Operational Failures now can be corrected by plan amendment if all of the following conditions apply:

• Corrective amendment results in an increase of a participant’s benefit, right or feature

• The increase in benefit, right or feature is provided to all employees eligible to participate in the plan

• The increase in benefit, right or feature is allowed under the IRS Code and satisfies correction principles in Revenue Procedure 2019-19, Section 6.02

Plan Document Failures can be corrected by plan amendment if the plan has:

• Favorable Letter

• Satisfies Section 9 of Revenue Procedure 2019-19, which requires a Plan Sponsor of a Qualified Plan or 403(b) Plan to correct the failure by the last day of the correction period described in section 9.02