IRS Expands Self Correction Program in New EPCRS Procedure

The IRS has yet again updated the Employee Plans Compliance Resolution System (EPCRS), this time expanding the use of the Self Correction Program (SCP) in Revenue Procedure 2019-19. The new procedures are effective April 19, 2019.


Previously, SCP was only available to correct certain operational failures (see our FAQ, “Self-Correction of Operational Defects”). In response to practitioner requests, the IRS has made SCP available in the following additional circumstances to increase compliance and reduce the costs and burdens associated with compliance:


1. Plan Document Failures

The new procedures permit qualified plans and 403(b) plans to correct certain “Plan Document Failures” (i.e., non amender failures, failure to adopt good faith amendments, and failure to adopt required interim amendments) using SCP. Correction must be completed within the SCP correction period (generally, by the last day of the second plan year following the plan year in which the failure occurred). The IRS considers plan document failures to begin in the plan year in which the applicable remedial amendment period ends. Failure to timely adopt an initial plan document(including a written 403(b) document), failure to timely adopt a discretionary amendment, and failure to timely adopt corrective amendments for demographic failures are not Plan Document Failures eligible for SCP.


2. Correction by Plan Amendment

For operational failures, the IRS now permits self-correction by plan amendment to conform the terms of the plan to the plan’s prior operations, but only if the following conditions are satisfied:

  • The plan amendment would result in an increase of a benefit, right or feature.

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

  • Providing the increase in the benefit, right, or feature to participants is permitted under the Internal Revenue Code and satisfies the correction principles and other applicable rules of EPCRS.

It is not yet clear how helpful this expansion will be in practice, as many operational failures affect only a subset of eligible employees under a plan. For example, a compensation error involving overtime pay presumably only affects those eligible employees who would be entitled to overtime, so SCP may not be available to correct such an error. Additionally, it is not clear whether the use of the term “benefit, right or feature” means that amendments are limited to operational failures involving a “benefit, right or feature” as defined under Code Section 401(a)(4), or whether it was intended to apply to all operational failures that otherwise meet the SCP requirements. Further guidance from the IRS would be helpful. If it is not certain that plan amendment under SCP will meet all of the requirements above, plan sponsors may choose to obtain an opinion of counsel or if certainty is required, pay the fee and file a VCP application instead.


3. Plan Loan Failures

Certain loan failures may now be corrected under SCP, including: (i) reporting deemed distributions in the year of correction instead of the year of failure; (ii) correcting defaulted loans pursuant to methods previously only available under VCP or Audit CAP; (iii) correcting failures to obtain spousal consent for a loan; and (iv) correcting failure to follow plan terms regarding the number of permitted loans by retroactive plan amendment.Loans made in excess of the statutory loan limits or plan terms that do not meet the requirements of Code Section 72(p)(2)(B) or (C) (repayment period and amortization requirements) may only be corrected under VCP or Audit CAP.


4. Spousal Consent Failures

Failure to obtain spousal consent for distributions other than plan loans may now be corrected under SCP or Audit CAP using the methods that were previously only available under VCP.


The IRS continues to receive comments and update EPCRS, so plan sponsors can expect further revisions in the future. If you have any questions about the expanded SCP, please contact one of our attorneys.



© Boutwell Fay LLP 2019, 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 May 31, 2019.



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