Two recent Internal Revenue Service updates to its correction program, the Employee Plans Compliance Resolution System, ease some burdens on employers discovering costly errors in their plans, practitioners told Bloomberg BNA.
Revenue Procedure 2015-27 provided good clarification for employers who are reluctant to self-correct because of the impact trying to recoup overpayments would have on retirees, they said.
In the guidance, released March 27, the IRS made clear that plans discovering overpayments don't need to ask for the money back from retirees before taking other avenues to make the plan whole. The guidance also lessened the costs associated with correcting plan loan errors.
“This is a really good clarification,” J. Rose Zaklad, an associate with Groom Law Group Chartered in Washington told Bloomberg BNA.
“Employers were very reluctant to go after these retirees to seek repayments, but they thought they had to do so,” she said.
Less than a week after issuing Rev. Proc. 2015-27, the IRS modified EPCRS again in Rev. Proc. 2015-28.
The guidance offered new safe harbor correction methods related to automatic contribution features through the EPCRS, aiming to bolster participation in tax code Section 401(k) and other similar plans.
David Mustone, a partner at Hunton & Williams LLP in McLean, Va., told Bloomberg BNA that the new guidance was “significant” and another incremental step in improving the EPCRS.
Ilene H. Ferenczy, managing partner of Ferenczy Benefits Law Center LLP in Atlanta, praised the changes in Rev. Proc. 2015-27, particularly the changes regarding plan loan corrections.
When it comes to mistakes on plan loans, Ferenczy told Bloomberg BNA, if a participant messes the loan up, there isn't much sympathy for them. However, if there truly is a plan mistake, it can be a costly error for the participant because the money associated with the loan would become taxable income, she said.
Additionally, the IRS requires a filing to correct a plan loan error, which can come with some exorbitant high fees, depending on the size of the plan, Ferenczy said.
“The IRS filing fees are usually based on the number of participants in the plan. The change made the fee relate to the number of participants with loan problems, so it represents a substantial decrease in the costs, particularly for larger plans,” she said.
Zaklad had a similar view of the plan loan changes, saying in most plan loan failures she sees, the participants aren't at fault. She said the changes to EPCRS provide “really great relief. I think a lot of people are excited about it and I do think that people will be using this reduced fee and you might be seeing more loan” corrections through the IRS's Voluntary Correction Program.
While Ferenczy was pleased with the EPCRS advances, she said the IRS didn't go as far as many in the retirement practitioner community would have liked. Many would like to be able to self-correct the failure, she said.
Mustone echoed that sentiment, saying that while the fee reductions were “a great step forward,” many practitioners would like the IRS to allow for self-corrections in this area.
Excerpted from a story that ran in Pension & Benefits Daily (04/07/2015).
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