With the recent issuance of Revenue Procedure 2018-4, the IRS surprisingly announced: “Effective January 2, 2018, the IRS simplified the user fees charged for most submissions made under the Voluntary Compliance Program (VCP).” The VCP falls under the IRS’ Employee Plans Compliance Resolution System (EPCRS) and provides a very valuable means for retirement plan sponsors to get approval for the voluntary correction of operational and documentation errors that put their plan’s favorable tax-qualified status at risk. As is the case under most simplification scenarios, however, there are winners and there are some — likely unintended — losers.
As the Building Block that is included with this issue of the Newsletter illustrates, the new applicable user fee is based on net plan assets as of the end of the plan year which is typically determined from its most recently filed Form 5500-series return. Under prior IRS Revenue Procedures, user fees were based on the number of plan participants as of the end of the planyear and there were significantly reduced fees for specified failures. This change in methodology means that large retirement plan sponsors will likely pay significantly less to correct plan failures under the VCP, but “small” plan sponsors will likely pay more and the discounted fees were eliminated altogether. The following examples illustrate these points:
Large Plan – Over $10M in Net Plan Assets: New VCP user fees are capped at $3,500, whereas, 2017 user fees would have been $5,000 if greater than 100 participants, $10,000 if greater than 1,000 participants or $15,000 if greater than 10,000 participants — reductions of $1,500, $6,500 or $11,500 (over 76% lower), respectively.
Small Plan – Over $500K to $10M in Net Plan Assets: New VCP user fees of $3,000, whereas, 2017 user fees would have been $1,500 if 51-100 participants, $750 if 21-50 participants or $500 if 20 or fewer participants — increases of $1,500, $2,250 or $2,500 (500% additional cost), respectively.
Small Plan – $500K or Less in Net Plan Assets: New VCP user fees of $1,500, whereas, 2017 user fees would have been $1,500 if 51-100 participants, $750 if 21-50 participants or $500 if 20 or fewer participants — increases of $0, $750 or $1,000 (200% additional cost), respectively.
NO Reduced VCP User Fees For: Late adoption of interim amendments (was only $375), other untimely non-amender failures, certain participant loan failures (previously $300 for up to 13), operational failures involving required minimum distributions (previously $500 for up to 150 participants affected), submissions for SEPs, SARSEPs and SIMPLE IRAs (previously $250) or submission related to a request for a minor modification of a previously issued VCP compliance statement.
Even with the increased cost for smaller plans and the elimination of reduced user fees for the specified failures, obtaining a compliance statement from the IRS by utilizing the VCP may still be far superior to the penalties and interest that could be assessed by the IRS if the plan were to be audited. In addition, most fiduciary liability policies will cover the IRS user and professional services fees (including the legal fees necessary for submitting under the VCP).
Please feel free to contact our Firm if you would like to discuss any of the foregoing information in greater detail.
© 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 January 31, 2018.