EPCRS: Revenue Procedures

Transcription

1 Tax Exempt and Government Entities: Employee Plans Update to the Employee Plans Compliance Resolution System (EPCRS) EPCRS: Revenue Procedures Revenue Procedure Revenue Procedures and modify or supplement Rev. Proc Revenue Procedure modified Correcting Plan Overpayments Rev. Proc corrective actions include: The Plan taking reasonable steps to have the overpayment (adjusted for interest) returned by the participant Rev. Proc clarifies the availability of alternative corrections. Options include: Employer or other person makes contribution Retroactive amendment Condition: Follow correction principles 3 1

2 Self-Correcting Excess 415 Annual Additions Rev. Proc Return excess elective deferrals within 2-½ months after end of limitation year Rev. Proc Extends the correction period for correcting excess annual additions from 2-½ months to 9- ½ months 4 VCP Fees: Failure to make Required Minimum Distributions (RMD) that would cause IRC 4974 excise tax (sole failure) Fees under Rev. Proc New fees under Rev. Proc Number of Participants with RMD Failure Fee Number of Participants with RMD Failure Fee 50 or Fewer $ or Fewer $500 More than to 300 $1,500 More than 300 Regular fee schedule based on number of participants Regular fee schedule based on number of participants 5 Participant loans not satisfying IRC 72(p) Rev. Proc Failure can t impact more than 25% of participants Fee is 50% of regular fee schedule, based on number of plan participants Rev. Proc Failure can t impact more than 25% of participants Fees based on the number of participants with loan failures 6 2

3 Model VCP Documents Revenue Procedure Form (primary form to describe failures, corrections etc.) Forms A thru I (the schedules) Letter 5265 (IRS Acknowledgement Letter) Forms/Letter replace Appendices C and D 7 Miscellaneous Changes Revenue Procedure Clarifies determination letter submission requirements with VCP submissions Extends time for adopting certain plan amendments Reflects elimination of Social Security Administration letter forwarding program 8 Revenue Procedure Highlights New safe harbor correction for the failure to implement election for 401(k)/403(b) plans with automatic enrollment New safe harbor corrections for elective deferral failures corrected within a short time (all 401(k)/403(b) plans) 9 3

4 Employee Election: Automatic Enrollment In a 401(k) or 403(b) plan with automatic enrollment feature, an employee s elected deferral is determined by: Employee s affirmative election or Plan terms 10 Correcting failure to implement Employee Election: Automatic Enrollment Plans 1 of 2 Additional safe harbor option. Rev. Proc No QNEC required to correct the missed deferral opportunity if the failure does not extend beyond the end 9 ½ months after plan year end of failure, and satisfy the following conditions: Correct elective deferrals begin generally, by 9 ½ months after plan year end of when failure first occurred (Earlier- if employee notifies) Timely notice to employee Notice must satisfy the content requirements and given within 45 days of when the correct elective deferrals begin 11 Correcting failure to implement Employee Election: Automatic Enrollment Plans 2 of 2 Rev. Proc safe harbor continued Corrective contributions for missed matching contributions Must make by end of the 2nd year following the year of failure (due date for correcting significant operational failures under SCP). Adjust for earnings New earnings safe harbor: Plan s default investment alternative - don t reduce for losses Sunset not available for failures occurring after

5 Safe Harbor Notice Content Notice should include: General information about the failure e.g. percentage of compensation that should ve been deferred, date deferrals should have commenced A statement that they ve started to deduct appropriate amounts from compensation and contributed to the plan or will begin shortly 13 Safe Harbor Notice Content (cont d.) Notice should also include: Statement that they ll make (or will make) corrective contributions for missed matching contributions Explanation that affected participant may increase deferral percentage to make up for the missed deferral opportunity (up to IRC 402(g) limits) Plan name and contact information (including name, address, address and plan contact phone number) 14 Correcting Employee Elective Deferral Failure within 3 months Employee Elective Deferral Failure includes: Failure to implement an employee s deferral election pursuant to an affirmative election or an automatic contribution feature (including automatic escalation feature) Failure to afford an employee the opportunity to make an affirmative election because the employee was improperly excluded from the plan 15 5

6 Correcting Employee Elective Deferral Failures within 3 months No QNEC required to correct for the missed deferral opportunity if the failure is corrected within 3 months and the following conditions are satisfied: Timely commencement of correct elective deferralsgenerally within 3 months of the date when the failure first occurred (Earlier- if employee notifies) Timely Notice to employee- Content 45 days from start of correct deferral 16 Correcting Employee Elective Deferral Failures within 3 months: Corrective contribution for missed matching contributions- Must be made by the due date for correcting significant operational failures under SCP. In most cases that is the end of the 2nd year following the year in which the failure occurred. Corrective contributions should be adjusted for earnings. New Earnings safe harbor: Plan s default investment alternative. No reduction for losses. 17 Correcting Employee Elective Deferral Failure before end of SCP period 1 of 2 Corrective QNEC =25% of the missed deferrals, instead of 50% if the following conditions are met: Timely commencement of correct elective deferralsgenerally no later than the last day of the 2nd plan year following the plan year in which the failure occurred (Earlier- if employee notifies) Timely Notice to employee- Notice must satisfy the content requirements and be provided to the employee within 45 days of the commencement of correct elective deferrals 18 6

7 Correcting Employee Elective Deferral Failure before end of SCP period 2 of 2 Corrective contributions incl. corrective QNEC for missed deferral opportunity and corrective contributions for missed matching contributions- Must be made by the due date for correcting significant operational failures under SCP. In most cases that is the end of the 2nd year following the year in which the failure occurred. Corrective contributions should be adjusted for earnings. New Earnings safe harbor: Plan s default investment alternative. No reduction for losses 19 New Fees for Regular Submissions Under VCP for Qualified Plans and 403(b) Plans Effective February 1, 2016, Rev. Proc Rev. Proc Number of Fees Number of Participants Participants Fees 20 or fewer $ or fewer $ to 50 $1, $ to 100 $2, $1, to 500 $5, ,000 $5, to 1,000 $8,000 1,001-10,000 $10,000 1,001 to 5,000 $15,000 Over 10,000 $15,000 5,001 to 10,000 $20,000 Over 10,000 $25, Employee Plans Voluntary Closing Agreements Retirement plan sponsors can submit voluntary closing agreement requests to the IRS Employee Plans Voluntary Compliance function. These requests are for issues that can't be addressed under the Employee Plans Compliance Resolution System (currently in Revenue Procedure ). 21 7

8 Employee Plans Voluntary Closing Agreements In December of 2013 the IRS announced in Employee Plans News a uniform system for handling Voluntary Closing Agreements request in Employee Plans (EP) Voluntary Compliance. Employee Plans Voluntary Closing Agreements 22 When is EP Voluntary Closing Agreement Request Appropriate? Plan Sponsor cannot correct plan failures using the EPCRS principals. Plan failures cannot be corrected under EPCRS. Resolution of income and excise taxes involving tax-deferred retirement plans. The IRS will decide when entering into a closing agreement with a plan sponsor is appropriate. 23 When Will EP Not Consider a Request for a Voluntary Closing Agreement? Plan/taxpayer is under examination or investigation The issues presented can be resolved under the Voluntary Correction Program (VCP) 457(b) plans 457(f) plans Willful tax avoidance 24 8

9 What is Out There? The Service is interested in knowing about problems/issues and involving retirement plans that cannot be resolved under EPCRS Problem/issues that affect: - Retirement plans (401(a), 403(b) 408(a), 401 (k)) - Plan sponsors - Plan administrators - Service providers 25 Employee Plans Voluntary Closing Agreements Mail your request to: Internal Revenue Service TE/GE:EP:VC Group 7554 Request for Voluntary Closing Agreement 9350 Flair Drive, 3rd Floor El Monte, CA Employee Plans Voluntary Closing Agreements Questions about submitting a voluntary closing agreement request call Paul Hogan at or Thelma Diaz at

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