IRS Updates Employee Plans Compliance Resolution System

The IRS has updated its Employee Plan Compliance Resolution System (EPCRS) in Rev. Proc. 2016-51, generally effective January 1, 2017.  Rev. Proc. 2016-51 incorporates the prior consolidated statement of EPCRS (Rev. Proc. 2013-12), and also includes interim modifications such as those made by Rev. Proc. 2015-27, chiefly addressing overpayments, and Rev. Proc. 2015-28, chiefly addressing certain automatic contribution failures.  Rev. Proc. 2016-51 also reflects sweeping changes made to the IRS’s determination letter program whereby the IRS eliminated the staggered 5-year remedial amendment cycle for individually designed plans and limited the scope of its determination letter program to initial plan qualification, qualification upon termination and certain other broadcasted circumstances.    

Most notable changes reflected in the updated EPCRS include the following:


  • The sanction for Audit Cap is no longer a negotiated percentage of the maximum payment amount, but instead is determined based on the totality of the facts and circumstances.  However, in general, the sanction will not be less than the VCP user fee applicable to the plan.
  • The sanction for failing to timely adopt an amendment that is corrected within three months after the expiration of the remedial amendment period is reduced to $750 without regard to the number of plan participants. 
  • User fees are no longer contained in the EPCRS procedure.  Beginning in 2017, all user fees and rules relating to user fees for VCP submission will be published in the annual EP revenue procedure that sets forth user fees, including VCP user fees.
  • The user fee for a terminating orphan plan may be waived at the discretion of the IRS.  A request for a waiver should be made at the time of the original submission.
  • The term plan document failure now includes certain Good Faith Amendments, Interim Amendments and Nonamender Failures.
  • Clarification that a sanction, in addition to the user fee, equal to 10% of any Excess Amount will apply when a failure involves an Excess Amount under a SEP or a SIMPLE IRA Plan and the plan sponsor retains the Excess Amount in such plan.
  • In the case of a failure to reach a resolution with regard to an Anonymous Submission, the IRS will no longer refund 50% of the applicable user fee.
  • Clarification that the correction of Interim Amendment and Nonamender Failures must be made by the date of submission and that corrective plan amendments required as part of a VCP submission must be adopted no later than 150 days after the date of the compliance statement. 
  • An applicant who wishes to obtain an acknowledgement of receipt of a VCP submission must use IRS Letter 5265 and attach it to the VCP submission.
  • The Model Compliance Statement and Schedules that were previously provided in Appendix C are now Forms 14568 and 14569-A through 14568-I.
  • The Acknowledgement Letter previously provided in Appendix D is now Letter 5265.
  • Language in Appendix A clarifies that a plan sponsor can choose any correction method in the appendices to correct a failure, as long as the plan satisfies the eligibility requirements for that correction method.

Practitioners should find the consolidated EPCRS procedure to be of useful value now that it incorporates all applicable law and removes confusing references to outdated determination letter procedures that no longer apply.