On January 4, 2016, the Internal Revenue Service (IRS) released bulletin 2016-1 detailing reduced general compliance fees for submissions to the Voluntary Correction Program (VCP) under the Employee Plans Compliance Resolution System (EPCRS). Effective February 1, 2016, fees for submitting applications are reduced for most employers who seek to correct retirement plan errors to protect their tax qualified status.
See the table below to compare the old and new VCP general compliance fees, which are based on the number of participants within the plan (determined by the most recently filed IRS Form 5500).
Following February 1, 2016, all VCP submissions will be subject to the updated fees. The reduced fees will not be applied to submissions withdrawn prior to the new fee date and then resubmitted following February 1, 2016. The IRS has also announced that they will update IRS Form 8951-until then, plan sponsors should utilize the current version of IRS Form 8951 for VCP submissions, but submit the reduced amount.
What About Other Fees?
The table above details general compliance fees for Qualified Plans and 403(b) Plans submitting under the VCP program, but different and/or fees are sometimes applicable when pursuing the VCP process. These other fees may include: fees for non-amender failures, multiple failures, group submission, SEPs and SIMPLE IRA Plans, egregious or intentional failures, establishing the number of plan participants, and insufficient general compliance fee. The dollar amount required for these other types of VCP submissions remains unchanged and are detailed in Section 12 of Rev. Proc. 2013-12.
The Benefits of Correcting Through VCP
Applying for VCP is an effective way to address errors within a plan document at less risk and cost than during an IRS examination. Employers may not utilize VCP if they are currentlyinvolved in an Employee Plans examination with the IRS. As a result, it is critical that plan documents and operations be reviewed regularly in order to identify and address any potential errors.
The VCP Program Allows Employers to
Address errors and bring the plan into compliance with federal tax law.
Receive a compliance statement from the IRS (document stating that plan correction methods have been approved).
Protect the plan’s tax qualified status.
Request relief from excise or federal income taxes that may otherwise be imposed in the case of certain plan errors.
The reduced application fees serve as encouragement from the IRS for plan sponsors to perform a comprehensive look into their plan documents to ensure federal compliance. Please, contact us if you have any questions regarding your plan document or seek assurance that your plan is in compliance with the federal tax law.
© Boutwell Fay LLP 2016, 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 February 29, 2016.