Editor's Note: This revenue procedure has been modified by Rev. Proc. 2002-35 (click) with respect to GUST non-amenders who file by September 3, 2002.

Revenue Procedure 2001-17

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Other parts of this Revenue Procedure:
Table of Contents 1 2 3 4 5 6 7 a b c

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PART II. PROGRAM EFFECT AND ELIGIBILITY

SECTION 3. EFFECT OF EPCRS; RELIANCE

.01 Effect of EPCRS on Qualified Plans. For a Qualified Plan, if the eligibility requirements of section 4 are satisfied and the Plan Sponsor corrects a Qualification Failure in accordance with the applicable requirements of SCP in section 7, VCP in sections 10 and 11, or Audit CAP in section 13, the Service will not treat the Qualified Plan as failing to meet section 401(a). Thus, for example, if the Plan Sponsor corrects the failures in accordance with the requirements of this revenue procedure, the plan will be treated as a qualified plan for purposes of applying section 3121(a)(5) (FICA taxes) and section 3306(b)(5) (FUTA taxes).

.02 Effect of EPCRS on 403(b) Plans. (1) Income taxes. For a 403(b) Plan, if the applicable eligibility requirements of section 4 are satisfied and the Plan Sponsor corrects a failure in accordance with the applicable requirements of SCP in section 7, VCP in sections 10 and 11, or Audit CAP in section 13, the Service will not pursue income inclusion for affected participants, or liability for income tax withholding, on account of the failure. However, the correction of a failure may result in income tax consequences to participants and beneficiaries (for example, participants may be required to include in gross income distributions of Excess Amounts in the year of distribution).

(2) Excise and employment taxes. Excise taxes, FICA taxes, and FUTA taxes (and corresponding withholding obligations), if applicable, that result from a failure are not waived merely because the failure has been corrected.

.03 Effect of EPCRS on SEPs. For a SEP, if the eligibility requirements of section 4 are satisfied and the Plan Sponsor corrects a failure to satisfy the requirements of section 408(k) in accordance with the applicable requirements of SCP in section 7 (but only if the corresponding Qualification Failure is an insignificant Operational Failure), VCP in sections 10 and 11, or Audit CAP in section 13, the Service will not treat the SEP as failing to meet section 408(k). Thus, for example, if the Plan Sponsor corrects the failures in accordance with the requirements of this revenue procedure, the SEP will be treated as satisfying section 408(k) for purposes of applying Section 3121(a)(5) (FICA taxes) and section 3306(b)(5) (FUTA taxes).

.04 Compliance Statement. If a Plan Sponsor or Eligible Organization receives a compliance statement under VCP, the compliance statement is binding upon the Service and the Plan Sponsor or Eligible Organization as provided in section 10.07.

.05 Other taxes and penalties. See section 6.07 for rules relating to other taxes and penalties.

.06 Reliance. Taxpayers may rely on this revenue procedure, including the relief described in sections 3.01, 3.02, and 3.03.

SECTION 4. PROGRAM ELIGIBILITY

.01 Programs for Qualified Plans and 403(b) Plans. (1) SCP. Qualified Plan and 403(b) Plans are eligible for SCP. SCP is available only for Operational Failures.

(2) VCP. Qualified Plans and 403(b) Plans are eligible for VCP. VCP provides general procedures for correction of all Qualification Failures: Operational, Plan Document, Demographic, and Employer Eligibility.

(3) Audit CAP. Audit CAP is available for correction of all failures found on examination that have not been corrected in accordance with SCP or VCP.

.02 Eligibility for other arrangements. (1) A SEP that is maintained under a Plan Document is eligible for SCP with respect to insignificant failures and is eligible for VCP (under the special VCSEP procedure). A SEP is also eligible for Audit CAP. For purposes of EPCRS, a failure to satisfy section 408(k) is treated like the corresponding Qualification Failure. A failure to satisfy section 408(k) includes a failure to satisfy the 50%-eligible-employees election requirement of section 408(k)(6)(A)(ii) and a failure to satisfy the 25-employee limit of section 408(k)(6)(B).

(2) The Service may extend EPCRS to other arrangements.

.03 Effect of examination. If the plan or Plan Sponsor is Under Examination, VCP is not available. However, while the plan or Plan Sponsor is Under Examination, insignificant Operational Failures can be corrected under SCP and, if correction has been substantially completed before the plan or Plan Sponsor is Under Examination, significant Operational Failures can be corrected under SCP.

.04 Favorable Letter requirement. VCO and the provisions of SCP relating to significant Operational Failures (see section 9) are available for a Qualified Plan only if the plan is the subject of a Favorable Letter.

.05 Established practices and procedures. In order to be eligible for SCP, the Plan Sponsor or administrator of a plan must have established practices and procedures (formal or informal) reasonably designed to promote and facilitate overall compliance with applicable Code requirements. For example, the plan administrator of a Qualified Plan that may be top-heavy under section 416 may include in its plan operating manual a specific annual step to determine whether the plan is top-heavy and, if so, to ensure that the minimum contribution requirements of the top-heavy rules are satisfied. A plan document alone does not constitute evidence of established procedures. In order for a Plan Sponsor or administrator to use SCP, these established procedures must have been in place and routinely followed, and an Operational Failure must have occurred through an oversight or mistake in applying them, because of an inadequacy in the procedures, or because the failure relates to Transferred Assets and did not occur after the end of the second plan year that begins after the corporate merger, acquisition, or other similar transaction.

.06 Correction by plan amendment. (1) Availability of correction by plan amendment in VCP general procedures. A Plan Sponsor may use VCP for a Qualified Plan to correct an Operational Failure by a plan amendment to conform the terms of the plan to the plan's prior operations, provided that the amendment complies with the requirements of section 401(a), including the requirements of sections 401(a)(4), 410(b), and 411(d)(6).

(2) Certain correction by plan amendment permitted in SCP and VCO. A Plan Sponsor may use SCP or VCO for a Qualified Plan to correct an Operational Failure by a plan amendment to conform the terms of the plan to the plan's prior operations only to correct Operational Failures listed in section 2.07 of Appendix B. These failures must be corrected in accordance with the correction methods set forth in section 2.07 of Appendix B. The amendment must comply with the requirements of section 401(a), including the requirements of sections 401(a)(4), 410(b), and 411(d)(6). SCP and VCO are not otherwise available for a Plan Sponsor to correct an Operational Failure by a plan amendment. Thus, if loans were made to participants, but the plan document did not permit loans to be made to participants, the failure cannot be corrected under SCP or VCO by retroactively amending the plan to provide for the loans. However, if a Plan Sponsor corrects an Operational Failure in accordance with SCP or VCO, it may amend the plan to the extent necessary to reflect the corrective action. For example, if the plan failed to satisfy the average deferral percentage (ADP) test required under section 401(k)(3) and the Plan Sponsor must make qualified nonelective contributions not already provided for under the plan, the plan may be amended to provide for qualified nonelective contributions. The issuance of a compliance statement does not constitute a determination as to the effect of any plan amendment on the qualification of the plan.

.07 Submission for a determination letter. In a case in which correction of a Qualification Failure includes correction of a Plan Document Failure or correction of an Operational Failure by plan amendment, as permitted under section 4.06, other than adoption of an amendment designated by the Service as a model amendment or standardized or prototype plan, the amendment must be submitted to the Service for approval using the appropriate application form (i.e., the Form 5300 series or, if permitted, Form 6406) to ensure that the amendment satisfies applicable qualification requirements.

.08 Availability of correction of Employer Eligibility Failure. A Plan Sponsor may use VCP general procedures, VCT, and VCSEP to correct an Employer Eligibility Failure. However, under sections 4.01, 4.02, and 10, SCP, VCO, and VCGroup are not available for a Plan Sponsor to correct an Employer Eligibility Failure.

.09 Egregious failures. SCP, VCO, VCGroup, and VCSEP are not available to correct Operational Failures that are egregious. For example, if an employer has consistently and improperly covered only highly compensated employees or if a contribution to a defined contribution plan for a highly compensated individual is several times greater than the dollar limit set forth in section 415, the failure would be considered egregious. VCP is available to correct egregious failures; however, these failures are subject to the fees described in sections 12.01(4) and 12.05(6).

.10 Diversion or misuse of plan assets. SCP, VCP, and Audit CAP are not available to correct failures relating to the diversion or misuse of plan assets.

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Other parts of this Revenue Procedure:
Table of Contents 1 2 3 4 5 6 7 a b c