EPCRS Goes Digital and the Risks of Outsourcing Plan Corrections

The Internal Revenue Service just updated its procedures for submissions for voluntary correction under the Employee Plans Compliance Resolution System (“EPCRS”). The big change is that starting in 2019, all submissions will now be made (and related fees paid) through on online portal rather than on paper. This should further streamline work for the Service, which continues to experience increased demand under its popular voluntary compliance program (particularly for corrections to 403(b) plans that are in the middle of their first ever remedial amendment period), while working with fewer resources.


Revenue Procedure 2018-52


Here are few of the highlights of the new revenue procedure:

  1. Starting April 1, 2019, all VCP applications must be made online, with payment of the VCP User Fee also paid online (online submissions may be made as early as January 1, 2019);

  2. 403(b) plans that have been timely restated using a pre-approved 403(b) document will be treated as having a “favorable letter” for self-correction purposes;

  3. Prior transition rules related to the elimination of the letter forwarding program for missing participants has been removed;

  4. It clarifies that IRS reserves the right not to issue a compliance statement, and the circumstances under which a user fee might be refunded,

  5. It confirms our experience with VCP applications –in the case of a properly completed and straightforward submission (straightforward errors and corrected using purely safe harbor methods), the Internal Revenue Service generally issues a VCP compliance statement without ever contacting the taxpayer or their representative. This is nearly always good news and is only a problem if the taxpayer discovers additional errors and had intended to supplement that VCP application to avoid filing a second application and paying a second user fee); and

  6. It foreshadows future guidance by noting that IRS has received comments regarding correction of overpayments through self-correction (rather than a VCP submission) and those are comments are being reviewed.


Outsourcing Plan Corrections


Revenue Procedure 2018-52 continues a trend towards standardization of plan corrections, and we commend the Service for its ongoing efforts to make the VCP program easier to use. At the same time, we encourage plan sponsors to take care when contracting for plan compliance and correction services. We recently reviewed a proposed 3(16) service agreement for an outsourced fiduciary which delegated to the fiduciary the right and authority to handle plan corrections (including submissions to the IRS and DOL, for “testing failures”). While at first blush that sounds attractive, we had a number of concerns. We understand that an outsourced 3(16) fiduciary will want and need to have enough authority to perform its fiduciary functions, but we fear that such a broad delegation of authority may not be in a plan sponsor’s best interests. Here are some concerns that should be addressed in evaluating this type of proposal:


  1. Which types of errors are covered, and which are not? Failure to issue timely refunds for a failed ADP test is one thing, a failed coverage test in a controlled group situation is quite another.

  2. Is there any requirement to notify the employer of the error and the correction method being used?

  3. Who is paying any required corrective contribution (we presume it is the employer)?

  4. What if there is no specified IRS safe harbor correction method for the error?

  5. What if the specified IRS safe harbor correction method is prohibitively expensive?

  6. How will lost earnings be calculated (EPCRS offers a number of options)?

  7. Are plan corrections a settlor or fiduciary function? What are the implications of each?

  8. What if the mistake that is being corrected was made by the fiduciary to whom correction was delegated?

  9. Are plan assets being used to pay for the correction and is this allowed?

  10. Who will address any issues that arise under Title I of ERISA?

  11. How does this arrangement affect any fiduciary insurance coverage?


Many of these concerns can be addressed with careful drafting of the service agreement; as well as monitoring of the outsourced fiduciary (which is required in any event) and paying attention to the policy language and requirements of applicable insurance policies. See, e.g., [cite to our service agreement article]. Those interested in delving deeper into the subject of outsourcing fiduciary functions may also want to review the ERISA Advisory Council Report on the subject, which can be found here .


Please feel free to contact our Firm if you would like to discuss any of the foregoing information in greater detail. We would welcome the opportunity to consult with you.


© Boutwell Fay LLP 2018, All Rights Reserved.This handout is for information purposes only, and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us.The information contained in this article is effective as of October 31, 2018.



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