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IRS Issues Interim EPCRS Correction Guidance Under SECURE 2.0
Plan sponsors can make additional corrections via SCP, rather than VCP, while a “reasonable amount of time” to discover an error is defined as 18 months.
The Internal Revenue Service issued interim guidance on Section 305 of the SECURE 2.0 Act last week, permitting a larger percentage of errors made by plan sponsors to be reported via the Self-Correction Program instead of the Voluntary Correction Program.
The SCP allows sponsors to make certain corrections without pre-approval from the IRS, while the VCP requires a fee and pre-approval for proposed corrections.
Section 305 of the SECURE 2.0 Act of 2022 allowed for more errors, such as loan errors, to be corrected through the SCP. The section permits “eligible inadvertent” errors made by IRA administrators to be corrected by the SCP. It also requires the Department of Labor to accept that corrections made through the Employee Plans Compliance Resolution System have also satisfied the requirements of the Voluntary Fiduciary Correction Program.
Section 305 was effective immediately upon SECURE 2.0’s December 29, 2022, enactment, but it required the Secretary of the Treasury to revise the EPCRS, with a deadline of two years after the law’s enactment. The interim guidance, issued as in Notice 2023-43, is intended to cover the gap until that revision is finalized.
While the interim guidance allows many of the bill’s intended results to proceed, it explicitly does not permit IRA custodians to self-correct until that final guidance is issued. Elizabeth Dold, a principal in and executive committee member at Groom Law Group, says that when final guidance is published for IRA self-correction, it will be “glorious for every IRA provider.”
The interim guidance also does not address other sections of SECURE 2.0 related to corrections, such as Section 301, which deals with overpayments, and Section 350, which deals with automatic feature errors.
The interim guidance does, however, allow sponsors to self-correct errors without regard for the date of occurrence, provided the self-correction comes within 18 months of an error’s discovery. Dold says this clarifies what “reasonable amount of time” meant in SECURE 2.0, which removed the last-day requirement for self-correction.
Sponsors still must follow the normal EPCRS process, and the guidance clarifies that sponsors can self-correct only if the error was not discovered in an audit, is non-egregious and the sponsor has appropriate policies and procedures. Dold emphasizes that sponsors cannot self-correct errors in plan documents.
Dold says the industry wanted this guidance immediately, and it “gives us enough to go ahead and do corrections for two years.”