What may we now do with self-corrections?

BenefitsLink helpfully posted the IRS’s prepublication release of Notice 2023-43 https://www.irs.gov/pub/irs-drop/n-23-43.pdf.

Here are my open questions for BenefitsLink neighbors’ observations:

1.    What does this IRS guidance let us do tomorrow that we couldn’t do before December 29, 2022?

2.    What were you hoping for that the IRS isn’t yet allowing?

3.    If an Eligible Inadvertent Failure is one that may be self-corrected, under what circumstances might one prefer to submit a VCP application?

I’ll start with two answers to my question 3:

Some prefer VCP over self-correction if the plan’s sponsor is a business organization that anticipates a sale of its shares, member interests, or partner interests (rather than a sale of the business’s assets). In mergers-and-acquisitions due diligence and negotiations, producing an IRS letter is simpler, quicker, and less expensive than writing a law firm’s or accounting firm’s opinion letter.

Some prefer VCP over self-correction if one doubts a self-correction memo will persuade an independent qualified public accountant that the correction is enough that the auditor may accept the plan administrator’s representation that the plan is tax-qualified.

Hi Peter - I haven't given this an exhaustive reading, but it appears to me that re question #1, the most potentially useful changes (for what I perceive as the majority of practitioners on this board) are #'s 2, 4, and 6 under Q&A-3. Self-correction is now allowed under 2 and 4, and the correction period for Significant failures is no longer limited to the "3 year" period. 

I didn't have a "wish list" so I have no comment on your question #2.

As to question #3, I've never had a real rule of thumb - it has always been facts and circumstances, as we don't do a lot of VCP submissions. Someone who deals with them on a more regular basis could doubtless provide you with some thoughts on this. Being of an essentially conservative nature on these issues, I guess if the Self-Correction is "gray" I'd at least tell client they should check with ERISA counsel as to whether they believe VCP is indicated, or if they are comfortable with Self-Correction.

Belgarath, thank you for your helpful observations.

It’s nice to see more tolerance to self-correct demographic failures, employer eligibility failures, and some loan failures.

Among the challenges for the employee-benefits lawyers you or I suggest a client consult is that whether the factual situation qualifies for self-correction (even under the new standard) often is ambiguous.

Helping a client with a self-correction often results in an implied opinion that the situation more likely than not qualifies for self-correction. That puts a risk exposure on the lawyer or other adviser. Depending on the size of the plan and on what might happen later, it can be a substantial risk exposure.