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BenefitsLink Newsletter

New U.S. tax and labor law materials on the net pertaining to
employee benefits, for employers, participants and service-providers.
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Newly issued Revenue Procedure 99-13 augments the IRS
Employee Plans Compliance Resolution System ("EPCRS").
It describes and illustrates many of the correction
methods that employers sponsoring tax-qualified plans
under Internal Revenue Code section 401(a) or 403(a) can
use to correct failures to comply with the qualified
plan rules.

The full text of Rev. Proc. 99-13 is online at

   http://www.benefitslink.com/IRS/revproc99-13.shtml

Many practitioners had suggested to the IRS that it
would be helpful for the IRS to provide additional
guidance on acceptable means of correction under EPCRS.

The correction methods described in the revenue
procedure include the following --

* For section 401(k) and section 401(m)
  nondiscrimination failures, in addition to the SVP
  correction method, a "one-to-one" correction method,
  which combines distribution of excess contributions
  with an equivalent corrective contribution that
  typically will be less than the corrective
  contribution under the SVP correction method for the
  same failure;

* If eligible employees have been excluded from
  receiving employer contributions under a
  profit-sharing or stock bonus plan, then, in addition
  to the SVP correction method, improperly allocated
  contributions can be reallocated to the excluded
  eligible employees, in accordance with specified
  requirements;

* If an amount has been improperly forfeited under a
  defined contribution plan, then either a corrective
  contribution can be made or, in accordance with
  specified requirements, the improperly forfeited
  amount can be reallocated;

* If payments from a defined benefit plan exceeded the
  415(b) limits, the excess can be repaid to the plan or
  future payments can be reduced;

* If annual additions under a defined contribution plan
  exceeded the section 415(c) limits, then in addition
  to the SVP correction method, the previously paid
  excess can be repaid to the plan or, in the case of
  certain terminated employees who have received a
  distribution of elective deferrals, nonvested employer
  contributions can be forfeited;

* If amounts in excess of certain other limits have been
  paid, then the excesses can be repaid to the plan or,
  as an additional alternative in the case of a defined
  benefit plan, future benefit payments can be reduced;

* If contributions to a defined contribution plan have
  been allocated based on compensation in excess of the
  section 401(a)(17) limit, then the excess allocation
  can be reallocated to other participants or used to
  reduce future employer contributions or, as an
  additional alternative, under the Walk-in Closing
  Agreement Program ("Walk-in CAP"), additional plan
  contributions can be made for other employees;

* If hardship distributions that were not permitted
  under plan terms have been made, then, in accordance
  with specified requirements, a corrective plan
  amendment can be made under Walk-in CAP; and

* If corrective contributions or allocations are made
  under a defined contribution plan, several alternative
  methods are provided for adjustments to reflect
  earnings.

The revenue procedure also expands the SVP correction
method for the exclusion of eligible employees from
elective deferrals, employee after-tax contributions,
and matching contributions for a full year to include
partial year exclusions, and clarifies the SVP
correction method for exclusion of eligible employees
from employer nonelective contributions under
profit-sharing and stock bonus plans.

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Additional information about EPCRS appears on
BenefitsLink --

 * Use the "Search" feature

 * Read the "Plan Defects: Correction/VCR/CAP Questions
   and Answers" column on BenefitsLink. Attorneys with
   the law firm of Reish & Luftman post online answers
   there to questions submitted via an online form on
   BenefitsLink. The URL for the column is:

      http://www.benefitslink.com/qa_columns/plan_defects

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