Retirement plans are subject to a very complex web of regulations governing their administration, and mistakes inevitably happen, even in the best-run plans. Recently, Brian Gallagher presented to Plante Moran on the various programs available for correcting such errors. If your organization would be interested in a similar presentation, or if you have questions about correcting errors involving your own retirement plan, please contact Fraser Trebilcock Employee Benefits attorney, Brian Gallagher at 517.377.0886 or bgallagher@fraserlawfirm.com.

1. CORRECTING MISTAKES IN
RETIREMENT PLAN
ADMINISTRATION
© 2014 Fraser Trebilcock Davis & Dunlap,
P.C.
Prepared for presentation to Plante Moran, 12/16/2014

2. Correction
Programs
 EPCRS
 Employee Plans Compliance Resolution
System
 DFVCP
 Delinquent Filer Voluntary Compliance
Program
 VFCP
 Voluntary Fiduciary Correction Program

3. Correction
Programs
 EPCRS
 Employee Plans Compliance Resolution
System
 DFVCP
 Delinquent Filer Voluntary Compliance Program
 VFCP
 Voluntary Fiduciary Correction Program

4. EPCRS: Overview
 IRS Program
 Available to Correct:
 Plan Document Failures
 Operational Failures
 Demographic Failures
 Employer Eligibility Failures
 Associated Resources
 Revenue Procedure 2013-12
 Forms 8950 and 8951

5. EPCRS: Overview
 Eligible Plans:
 Qualified Plans
 403(b) Plans
 SEPs
 SIMPLE-IRAs
 Ineligible Plans
 Tax-Exempt 457(b) Plans
 Quasi-eligible Plans
 Governmental 457(b) Plans

6. EPCRS: Overview
 Consolidation of Three Programs:
 SCP (“Self Correction Program”)
 VCP (“Voluntary Correction Program”)
 Audit CAP (“Audit Closing Agreement Program”)
 Key Eligibility Considerations:
 Are you already “Under Examination”?
 Is the failure “significant”?
 What is the duration of the failure?

7. EPCRS: Overview
 When is a Plan “Under Examination”?
 EP examination of the plan has already commenced
 Plan sponsor has received written or verbal notice of
an impending EP examination
 EP examination has been completed, but case is still
in appeals or litigation
 Plan is aggregated with another plan that is under
examination for coverage or nondiscrimination
purposes
 Reviewing agent finds issues during determination
letter application
 Plan is under investigation by Criminal Investigation
Division of the IRS
 Exempt Organizations examination of plan sponsor

8. EPCRS: Overview
 Factors in determining “Significance” of
Failure:
 Existence of other failures
 Percentage of assets and contributions involved
 Years involved
 Percentage of total participants affected
 Percentage of potentially affected participants
affected
 Timing of correction
 Reason for the failure

9. EPCRS: SCP
 Self Correction Program (“SCP”)
 Procedure
 Substantive correction of failure
 No disclosure to IRS
 No fee
 Other Considerations
 Important to maintain documentation regarding
substantive correction and eligibility for SCP

10. EPCRS: SCP (cont’d)
 Eligibility Requirements
 Only available for operational failures
 Always available to correct insignificant failures (even
if under examination)
 If failure is significant
 SCP only available until the end of the second plan year
following the year in which the failure occurred
 Plan cannot be under examination
 Plan must have favorable determination letter
 Must have established policies and procedures
reasonably designed to promote compliance with
qualification rules

11. EPCRS: VCP
 Voluntary Correction Program (“VCP”)
 Procedure
 Substantive correction of failure
 Application for IRS approval
 Application can be quite extensive, depending on
failure
 Payment of VCP Compliance Fee
 Other Considerations
 IRS is extremely behind in reviewing VCP
submissions
 Submission may be made anonymously, but does
not prevent Audit CAP if discovered during

12. EPCRS: VCP (cont’d)
 Eligibility Requirements
 Available for any failure type
 Available for insignificant and significant failures
 No set time limit, however…
 Not available once plan is under examination

13. EPCRS: VCP (cont’d)
 VCP Fees
 Reduced fees available for certain simple
failures
Number of Participants Fee
≤20 $750
21-50 $1,000
51-100 $2,500
101-500 $5,000
501-1,000 $8,000
1,001-5,000 $15,000
5,001-10,000 $20,000
>10,000 $25,000

14. EPCRS: Audit CAP
 Audit Closing Agreement Program (“Audit
CAP”)
 Procedure
 Substantive correction of failure
 Pay sanction
 Sign closing agreement with IRS
 Other Considerations
 If agreement cannot be reached, IRS will proceed
with plan disqualification—Rarely ever happens

15. EPCRS: Audit CAP (cont’d)
 Eligibility Requirements
 Occurs when plan is under examination and failures
cannot be corrected under SCP as insignificant
failures or significant failures which have been
substantially corrected prior to examination
 Sanction
 Generally a negotiated percentage of the total the IRS
could collect upon plan disqualification, which is equal
to the sum of the following amounts for all open years:
 Taxes on trust income
 Taxes resulting from loss of employer deduction
 Taxes resulting from including of income by participants

16. EPCRS: General Principles
 Substantive Corrections
 General Principle is to restore the plan and
participants to the position they would have
been in had the failure not occurred.
 Requires full correction for all participants and
beneficiaries for all taxable years (even closed
years)
 Rev. Proc. 2013-12 contains many examples of
corrections for specific failures
 Not exclusive methods by which to correct
 Generally require adjustments for earnings/interest

17. EPCRS: Examples
 Over/Under-Payments
 Failure to allocate forfeitures
 Failure to obtain spousal consent
 The “total package”

18. Correction
Programs
 EPCRS
 Employee Plans Compliance Resolution System
 DFVCP
 Delinquent Filer Voluntary Compliance
Program
 VFCP
 Voluntary Fiduciary Correction Program

19. DFVCP: Overview
 DOL Program
 IRS and PBGC have both agreed not to assess
penalties if DFVCP relief is obtained
 Available to correct:
 Delinquent Form 5500 Filings

20. DFVCP: Reduced Penalties
 Substantially reduced penalties under DFVCP
 Basic Penalty = $10/day
 Versus $1,100/day, plus $25/day IRS penalty
 “Per Plan” and “Per Return” Penalty Caps
 Small Plan (generally <100 participants)
 $750/return
 $1,500/plan
 Large Plan (generally ≥100 participants)
 $2,000/return
 $4,000/plan
 No “per sponsor” cap

21. DFVCP: Eligibility
 Must be subject to Title I of ERISA
 5500 EZ filers not eligible
 New pilot program from IRS
 Must not have received written notice of failure
to file annual return from DOL
 IRS notice will not cut off eligibility

22. DFVCP: Procedures
 Two Step Process
 File late returns through EFAST2
 Even for pre-2009 returns
 File DFVCP submission with payment of penalty
 Top Hat Plans also eligible for DFVCP Relief
 $750 penalty per filing, regardless of number of
plans or the number of participants covered
 Programs may be used in tandem

23. Correction
Programs
 EPCRS
 Employee Plans Compliance Resolution System
 DFVCP
 Delinquent Filer Voluntary Compliance Program
 VFCP
 Voluntary Fiduciary Correction Program

24. VFCP: Overview
 DOL Program
 Available to correct:
 Certain fiduciary breaches (or potential
breaches), including:
 Delinquent participant contributions and loan
repayments
 Prohibited transactions involving loans
 Participant loans in default
 Transactions with party-in-interest (especially real
estate)
 Improper payment of expenses by plan

25. VFCP: Procedure
 Conditions for relief
 File application with DOL
 Must involve type of breach eligible for VFCP
relief
 Eligibility requirements must be satisfied
 Take appropriate corrective action

26. © 2014 Fraser Trebilcock Davis & Dunlap,
P.C.
Fraser Trebilcock Davis & Dunlap, P.C.
124 W. Allegan Street, Suite 1000
Lansing, Michigan 48933
www.fraserlawfirm.com
Phone: (517) 482-5800
Fax: (517) 482-0887
Fraser Trebilcock Davis & Dunlap, P.C.
One Woodward Avenue, Suite 1550
Detroit, Michigan 48226
www.fraserlawfirm.com
Phone: (313) 237-7300
Fax: (313) 961-1651
Brian Gallagher
(517) 377-0886
bgallagher@fraserlawfirm.com
QUESTIONS?