Revenue Procedure 2003-44, Part I

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Part I. Introduction to Employee Plans Compliance Resolution System

Section 1. Purpose and Overview .01 Purpose. .02 General principles underlying EPCRS. .03 Overview. Section 2. Effect Of This Revenue Procedure on Programs .01 Effect on programs. .02 Future enhancements.

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Part I. Introduction to Employee Plans Compliance Resolution System

Section 1. Purpose and Overview

.01 Purpose. This revenue procedure updates the comprehensive system of correction programs for sponsors of retirement plans that are intended to satisfy the requirements of § 401(a), § 403(a), § 403(b), § 408(k), or § 408(p) of the Internal Revenue Code (the "Code"), but that have not met these requirements for a period of time. This system, the Employee Plans Compliance Resolution System ("EPCRS"), permits plan sponsors to correct these failures and thereby continue to provide their employees with retirement benefits on a tax-favored basis. The components of EPCRS are the Self-Correction Program ("SCP"), the Voluntary Correction Program ("VCP"), and the Audit Closing Agreement Program ("Audit CAP").

.02 General principles underlying EPCRS. EPCRS is based on the following general principles:

Sponsors and other administrators of eligible plans should be encouraged to establish administrative practices and procedures that ensure that these plans are operated properly in accordance with the applicable requirements of the Code. Sponsors and other administrators of eligible plans should satisfy the applicable plan document requirements of the Code. Sponsors and other administrators should make voluntary and timely correction of any plan failures, whether involving discrimination in favor of highly compensated employees, plan operations, the terms of the plan document, or adoption of a plan by an ineligible employer. Timely and efficient correction protects participating employees by providing them with their expected retirement benefits, including favorable tax treatment. Voluntary compliance is promoted by providing for limited fees for voluntary corrections approved by the Service, thereby reducing employers' uncertainty regarding their potential tax liability and participants' potential tax liability. Fees and sanctions should be graduated in a series of steps so that there is always an incentive to correct promptly. Sanctions for plan failures identified on audit should be reasonable in light of the nature, extent, and severity of the violation. Administration of EPCRS should be consistent and uniform. Sponsors should be able to rely on the availability of EPCRS in taking corrective actions to maintain the tax-favored status of their plans.

.03 Overview. EPCRS includes the following basic elements:

• Self-correction (SCP). A Plan Sponsor that has established compliance practices and procedures may, at any time without paying any fee or sanction, correct insignificant Operational Failures under a Qualified Plan or a 403(b) Plan, or a SEP or a SIMPLE IRA Plan, provided the SEP or SIMPLE IRA Plan is established and maintained on a document approved by the Service. In addition, in the case of a Qualified Plan that is the subject of a favorable determination letter from the Service or in the case of a 403(b) Plan, the Plan Sponsor generally may correct even significant Operational Failures without payment of any fee or sanction.

• Voluntary correction with Service approval (VCP). A Plan Sponsor, at any time before audit, may pay a limited fee and receive the Service's approval for correction of a Qualified Plan, 403(b) Plan, SEP or SIMPLE IRA Plan. Under VCP, there are special procedures for anonymous submissions and group submissions.

• Correction on audit (Audit CAP). If a failure (other than a failure corrected through SCP or VCP) is identified on audit, the Plan Sponsor may correct the failure and pay a sanction. The sanction imposed will bear a reasonable relationship to the nature, extent, and severity of the failure, taking into account the extent to which correction occurred before audit.

Section 2. Effect of This Revenue Procedure on Programs

.01 Effect on programs. This revenue procedure modifies and supersedes Rev. Proc. 2002-47, 2002-29 I.R.B. 133, which was the prior consolidated statement of the correction programs under EPCRS. A number of changes have been made to simplify EPCRS and increase uniformity in the administration process and fee structure. The modifications to Revenue Procedure 2002-47 that are reflected in this revenue procedure include:

• consolidating all voluntary correction procedures into a single voluntary correction program (VCP) (sections 4.01(2), 10)

• providing a fixed fee schedule for all VCP submissions (section 12)

• eliminating the Voluntary Correction of Operational Failures Standardized procedure (VCS) (section 10)

• providing for a single time for payment of compliance fees for most VCP submissions (sections 11.04, 11.05)

• expanding EPCRS to SIMPLE IRA Plans (section 4.01)

• adding correction methods and reporting instructions for SEPs and SIMPLE IRA Plans (section 6.10)

• simplifying the Group Submission procedure by eliminating the POA requirement and revising the Group Submission compliance fee (sections 10.12(3)(b), 12.04)

• eliminating the requirement that VCP compliance fees be submitted by certified or cashier's check (sections 10.06, 11.05 and 12.01)

• expanding the Anonymous and Group Submission procedures to all submissions under VCP including SEPs and SIMPLE IRA Plans (section 10.11, 10.12)

• providing rules relating to reporting plan loan failures (section 6.07)

• providing guidance for EGTRRA nonamenders (section 4.10)

• expanding the definition of Overpayment (section 5.01(6))

• clarifying the special exception to full correction for imprecise or unavailable data (section 6.02(5)(a))

• adding a correction method for a failure to obtain spousal consent (section 6.04)

• clarifying that the correction of failures in a terminated plan may be made under VCP whether or not the trust is in existence (section 10.03)

• updating the definition of Favorable Letter (section 5.01(4))

• revising the Form 5500 information required for VCP submissions (section 11.03)

• extending correction methods in Appendix A and Appendix B to 403(b) Plans, SEPs and SIMPLE IRA Plans (Appendix A, section .01 and Appendix B, section 1.01)

• expanding the correction method for early inclusion of an otherwise eligible employee to include improper inclusion due to the application of an incorrect entry date (Appendix B, section 2.07(3))

• eliminating the factor under Audit CAP that referred to the VCP fees to emphasize that the Maximum Payment Amount is the basis upon which Audit CAP sanctions are negotiated (section 14.02)

• adding a factor under Audit CAP concerning the determination letter process (section 14.02)

• adding Appendix D-- sample formats to assist Plan Sponsors in preparing VCP submissions

.02 Future enhancements. (1) It is expected that the EPCRS revenue procedure will continue to be updated on a periodic basis, including, as noted above, further improvements to EPCRS based on comments previously received. In addition, the Service and Treasury continue to invite further comments on how to improve EPCRS. Comments should be sent to:

Internal Revenue Service
Attention: T:EP:RA:VC
1111 Constitution Avenue NW
Washington, D.C. 20224

(2) The Service and Treasury are considering expanding the procedures under EPCRS and are interested in receiving comments regarding, among other things, appropriate correction procedures for failures arising under § 457(b) plans. Submissions relating to § 457(b) eligible governmental plans will be accepted by the Service on a provisional basis outside of EPCRS. Submissions relating to other § 457(b) eligible plans may be accepted outside EPCRS as Employee Plans develops experience in the § 457 area. The Service is also interested in receiving comments regarding appropriate correction procedures for failures arising under Qualified Plans, 403(b) Plans and § 457(b) plans with § 408(q) "deemed IRA" provisions. Submissions related to Qualified Plans, 403(b) Plans and § 457(b) eligible governmental plans with § 408(q) "deemed IRA" provisions will be accepted by the Service on a provisional basis outside of EPCRS.

(3) The Service and Treasury are evaluating the availability of the correction procedures under EPCRS for any failures related to a plan's participation in a transaction that is a reportable transaction under Treas. Regs. §1.6011-4(b). Until this evaluation is completed, the Service reserves its right to treat any such failures as ineligible for EPCRS or to deal with any such failures outside EPCRS.

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Official location: 2003-25 I.R.B. 1051 (June 23, 2003)

Also online at https://benefitslink.com/IRS/revproc2003-44.pdf