On an updated webpage, the IRS reminds plan sponsors, or their representatives, to make sure their voluntary correction program (VCP) submissions are error-free before submitting them. The agency notes that if a submission has errors, it takes longer to review and delays the issuance of the compliance statement.
The page lists top mistakes found in VCP submissions that plan sponsors can review before completing their work.
Among the common errors the IRS finds is that “the descriptions of failures weren’t detailed enough or easy to understand,” according to the webpage. The IRS says submissions where the descriptions of operational failures didn’t specify the plan sections not followed or the number of participants affected by the failure were not processed.
Plan sponsors should also make sure the method used to determine the earnings to correct contributions or distributions is clear. And plan sponsors, or their representatives, should include specific proposed changes to administrative procedures, and the proposed changes should address how they will prevent the failure from happening again.
For submissions involving participant loans and Internal Revenue Code (IRC) Section 72(p), copies of loan agreements and amortization schedules for affected participants, as well as a copy of a referenced “loan policy,” should be included.
The IRS recently revealed an examination initiative to ensure that participant loans comply with IRC Section 72(p) rules on maximum loan balances and IRC Section 72(t) repayment rules for early distributions before age 59.5. The IRS says it will verify whether participant loans of retirement plans that hold a high percentage of participant loans to total assets of the trust are being repaid timely if the loan balance remains consistent or increases for more than one year.
Other important items missing from VCP submissions for operational failures include:
- detailed computations showing how corrective amounts were determined;
- detailed computations showing how earnings were determined and how they impacted the computation of the corrective amounts;
- a copy of the plan section (or plan document) in effect during the failure period; and
- additional documents and explanations for failures being corrected by plan amendment that conform the plan document to the plan’s operations.
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