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CORRECTING MISTAKES IN
RETIREMENT PLAN
ADMINISTRATION
© 2014 Fraser Trebilcock Davis & Dunlap,
P.C.
Prepared for presentation to Plante Moran, 12/16/2014
Correction
Programs
 EPCRS
 Employee Plans Compliance Resolution
System
 DFVCP
 Delinquent Filer Voluntary Compliance
Program
 VFCP
 Voluntary Fiduciary Correction Program
Correction
Programs
 EPCRS
 Employee Plans Compliance Resolution
System
 DFVCP
 Delinquent Filer Voluntary Compliance Program
 VFCP
 Voluntary Fiduciary Correction Program
EPCRS: Overview
 IRS Program
 Available to Correct:
 Plan Document Failures
 Operational Failures
 Demographic Failures
 Employer Eligibility Failures
 Associated Resources
 Revenue Procedure 2013-12
 Forms 8950 and 8951
EPCRS: Overview
 Eligible Plans:
 Qualified Plans
 403(b) Plans
 SEPs
 SIMPLE-IRAs
 Ineligible Plans
 Tax-Exempt 457(b) Plans
 Quasi-eligible Plans
 Governmental 457(b) Plans
EPCRS: Overview
 Consolidation of Three Programs:
 SCP (“Self Correction Program”)
 VCP (“Voluntary Correction Program”)
 Audit CAP (“Audit Closing Agreement Program”)
 Key Eligibility Considerations:
 Are you already “Under Examination”?
 Is the failure “significant”?
 What is the duration of the failure?
EPCRS: Overview
 When is a Plan “Under Examination”?
 EP examination of the plan has already commenced
 Plan sponsor has received written or verbal notice of
an impending EP examination
 EP examination has been completed, but case is still
in appeals or litigation
 Plan is aggregated with another plan that is under
examination for coverage or nondiscrimination
purposes
 Reviewing agent finds issues during determination
letter application
 Plan is under investigation by Criminal Investigation
Division of the IRS
 Exempt Organizations examination of plan sponsor
EPCRS: Overview
 Factors in determining “Significance” of
Failure:
 Existence of other failures
 Percentage of assets and contributions involved
 Years involved
 Percentage of total participants affected
 Percentage of potentially affected participants
affected
 Timing of correction
 Reason for the failure
EPCRS: SCP
 Self Correction Program (“SCP”)
 Procedure
 Substantive correction of failure
 No disclosure to IRS
 No fee
 Other Considerations
 Important to maintain documentation regarding
substantive correction and eligibility for SCP
EPCRS: SCP (cont’d)
 Eligibility Requirements
 Only available for operational failures
 Always available to correct insignificant failures (even
if under examination)
 If failure is significant
 SCP only available until the end of the second plan year
following the year in which the failure occurred
 Plan cannot be under examination
 Plan must have favorable determination letter
 Must have established policies and procedures
reasonably designed to promote compliance with
qualification rules
EPCRS: VCP
 Voluntary Correction Program (“VCP”)
 Procedure
 Substantive correction of failure
 Application for IRS approval
 Application can be quite extensive, depending on
failure
 Payment of VCP Compliance Fee
 Other Considerations
 IRS is extremely behind in reviewing VCP
submissions
 Submission may be made anonymously, but does
not prevent Audit CAP if discovered during
EPCRS: VCP (cont’d)
 Eligibility Requirements
 Available for any failure type
 Available for insignificant and significant failures
 No set time limit, however…
 Not available once plan is under examination
EPCRS: VCP (cont’d)
 VCP Fees
 Reduced fees available for certain simple
failures
Number of Participants Fee
≤20 $750
21-50 $1,000
51-100 $2,500
101-500 $5,000
501-1,000 $8,000
1,001-5,000 $15,000
5,001-10,000 $20,000
>10,000 $25,000
EPCRS: Audit CAP
 Audit Closing Agreement Program (“Audit
CAP”)
 Procedure
 Substantive correction of failure
 Pay sanction
 Sign closing agreement with IRS
 Other Considerations
 If agreement cannot be reached, IRS will proceed
with plan disqualification—Rarely ever happens
EPCRS: Audit CAP (cont’d)
 Eligibility Requirements
 Occurs when plan is under examination and failures
cannot be corrected under SCP as insignificant
failures or significant failures which have been
substantially corrected prior to examination
 Sanction
 Generally a negotiated percentage of the total the IRS
could collect upon plan disqualification, which is equal
to the sum of the following amounts for all open years:
 Taxes on trust income
 Taxes resulting from loss of employer deduction
 Taxes resulting from including of income by participants
EPCRS: General Principles
 Substantive Corrections
 General Principle is to restore the plan and
participants to the position they would have
been in had the failure not occurred.
 Requires full correction for all participants and
beneficiaries for all taxable years (even closed
years)
 Rev. Proc. 2013-12 contains many examples of
corrections for specific failures
 Not exclusive methods by which to correct
 Generally require adjustments for earnings/interest
EPCRS: Examples
 Over/Under-Payments
 Failure to allocate forfeitures
 Failure to obtain spousal consent
 The “total package”
Correction
Programs
 EPCRS
 Employee Plans Compliance Resolution System
 DFVCP
 Delinquent Filer Voluntary Compliance
Program
 VFCP
 Voluntary Fiduciary Correction Program
DFVCP: Overview
 DOL Program
 IRS and PBGC have both agreed not to assess
penalties if DFVCP relief is obtained
 Available to correct:
 Delinquent Form 5500 Filings
DFVCP: Reduced Penalties
 Substantially reduced penalties under DFVCP
 Basic Penalty = $10/day
 Versus $1,100/day, plus $25/day IRS penalty
 “Per Plan” and “Per Return” Penalty Caps
 Small Plan (generally <100 participants)
 $750/return
 $1,500/plan
 Large Plan (generally ≥100 participants)
 $2,000/return
 $4,000/plan
 No “per sponsor” cap
DFVCP: Eligibility
 Must be subject to Title I of ERISA
 5500 EZ filers not eligible
 New pilot program from IRS
 Must not have received written notice of failure
to file annual return from DOL
 IRS notice will not cut off eligibility
DFVCP: Procedures
 Two Step Process
 File late returns through EFAST2
 Even for pre-2009 returns
 File DFVCP submission with payment of penalty
 Top Hat Plans also eligible for DFVCP Relief
 $750 penalty per filing, regardless of number of
plans or the number of participants covered
 Programs may be used in tandem
Correction
Programs
 EPCRS
 Employee Plans Compliance Resolution System
 DFVCP
 Delinquent Filer Voluntary Compliance Program
 VFCP
 Voluntary Fiduciary Correction Program
VFCP: Overview
 DOL Program
 Available to correct:
 Certain fiduciary breaches (or potential
breaches), including:
 Delinquent participant contributions and loan
repayments
 Prohibited transactions involving loans
 Participant loans in default
 Transactions with party-in-interest (especially real
estate)
 Improper payment of expenses by plan
VFCP: Procedure
 Conditions for relief
 File application with DOL
 Must involve type of breach eligible for VFCP
relief
 Eligibility requirements must be satisfied
 Take appropriate corrective action
© 2014 Fraser Trebilcock Davis & Dunlap,
P.C.
Fraser Trebilcock Davis & Dunlap, P.C.
124 W. Allegan Street, Suite 1000
Lansing, Michigan 48933
www.fraserlawfirm.com
Phone: (517) 482-5800
Fax: (517) 482-0887
Fraser Trebilcock Davis & Dunlap, P.C.
One Woodward Avenue, Suite 1550
Detroit, Michigan 48226
www.fraserlawfirm.com
Phone: (313) 237-7300
Fax: (313) 961-1651
Brian Gallagher
(517) 377-0886
bgallagher@fraserlawfirm.com
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Correcting Mistakes in Retirement Plan Administration

  • 1. CORRECTING MISTAKES IN RETIREMENT PLAN ADMINISTRATION © 2014 Fraser Trebilcock Davis & Dunlap, P.C. Prepared for presentation to Plante Moran, 12/16/2014
  • 2. Correction Programs  EPCRS  Employee Plans Compliance Resolution System  DFVCP  Delinquent Filer Voluntary Compliance Program  VFCP  Voluntary Fiduciary Correction Program
  • 3. Correction Programs  EPCRS  Employee Plans Compliance Resolution System  DFVCP  Delinquent Filer Voluntary Compliance Program  VFCP  Voluntary Fiduciary Correction Program
  • 4. EPCRS: Overview  IRS Program  Available to Correct:  Plan Document Failures  Operational Failures  Demographic Failures  Employer Eligibility Failures  Associated Resources  Revenue Procedure 2013-12  Forms 8950 and 8951
  • 5. EPCRS: Overview  Eligible Plans:  Qualified Plans  403(b) Plans  SEPs  SIMPLE-IRAs  Ineligible Plans  Tax-Exempt 457(b) Plans  Quasi-eligible Plans  Governmental 457(b) Plans
  • 6. EPCRS: Overview  Consolidation of Three Programs:  SCP (“Self Correction Program”)  VCP (“Voluntary Correction Program”)  Audit CAP (“Audit Closing Agreement Program”)  Key Eligibility Considerations:  Are you already “Under Examination”?  Is the failure “significant”?  What is the duration of the failure?
  • 7. EPCRS: Overview  When is a Plan “Under Examination”?  EP examination of the plan has already commenced  Plan sponsor has received written or verbal notice of an impending EP examination  EP examination has been completed, but case is still in appeals or litigation  Plan is aggregated with another plan that is under examination for coverage or nondiscrimination purposes  Reviewing agent finds issues during determination letter application  Plan is under investigation by Criminal Investigation Division of the IRS  Exempt Organizations examination of plan sponsor
  • 8. EPCRS: Overview  Factors in determining “Significance” of Failure:  Existence of other failures  Percentage of assets and contributions involved  Years involved  Percentage of total participants affected  Percentage of potentially affected participants affected  Timing of correction  Reason for the failure
  • 9. EPCRS: SCP  Self Correction Program (“SCP”)  Procedure  Substantive correction of failure  No disclosure to IRS  No fee  Other Considerations  Important to maintain documentation regarding substantive correction and eligibility for SCP
  • 10. EPCRS: SCP (cont’d)  Eligibility Requirements  Only available for operational failures  Always available to correct insignificant failures (even if under examination)  If failure is significant  SCP only available until the end of the second plan year following the year in which the failure occurred  Plan cannot be under examination  Plan must have favorable determination letter  Must have established policies and procedures reasonably designed to promote compliance with qualification rules
  • 11. EPCRS: VCP  Voluntary Correction Program (“VCP”)  Procedure  Substantive correction of failure  Application for IRS approval  Application can be quite extensive, depending on failure  Payment of VCP Compliance Fee  Other Considerations  IRS is extremely behind in reviewing VCP submissions  Submission may be made anonymously, but does not prevent Audit CAP if discovered during
  • 12. EPCRS: VCP (cont’d)  Eligibility Requirements  Available for any failure type  Available for insignificant and significant failures  No set time limit, however…  Not available once plan is under examination
  • 13. EPCRS: VCP (cont’d)  VCP Fees  Reduced fees available for certain simple failures Number of Participants Fee ≤20 $750 21-50 $1,000 51-100 $2,500 101-500 $5,000 501-1,000 $8,000 1,001-5,000 $15,000 5,001-10,000 $20,000 >10,000 $25,000
  • 14. EPCRS: Audit CAP  Audit Closing Agreement Program (“Audit CAP”)  Procedure  Substantive correction of failure  Pay sanction  Sign closing agreement with IRS  Other Considerations  If agreement cannot be reached, IRS will proceed with plan disqualification—Rarely ever happens
  • 15. EPCRS: Audit CAP (cont’d)  Eligibility Requirements  Occurs when plan is under examination and failures cannot be corrected under SCP as insignificant failures or significant failures which have been substantially corrected prior to examination  Sanction  Generally a negotiated percentage of the total the IRS could collect upon plan disqualification, which is equal to the sum of the following amounts for all open years:  Taxes on trust income  Taxes resulting from loss of employer deduction  Taxes resulting from including of income by participants
  • 16. EPCRS: General Principles  Substantive Corrections  General Principle is to restore the plan and participants to the position they would have been in had the failure not occurred.  Requires full correction for all participants and beneficiaries for all taxable years (even closed years)  Rev. Proc. 2013-12 contains many examples of corrections for specific failures  Not exclusive methods by which to correct  Generally require adjustments for earnings/interest
  • 17. EPCRS: Examples  Over/Under-Payments  Failure to allocate forfeitures  Failure to obtain spousal consent  The “total package”
  • 18. Correction Programs  EPCRS  Employee Plans Compliance Resolution System  DFVCP  Delinquent Filer Voluntary Compliance Program  VFCP  Voluntary Fiduciary Correction Program
  • 19. DFVCP: Overview  DOL Program  IRS and PBGC have both agreed not to assess penalties if DFVCP relief is obtained  Available to correct:  Delinquent Form 5500 Filings
  • 20. DFVCP: Reduced Penalties  Substantially reduced penalties under DFVCP  Basic Penalty = $10/day  Versus $1,100/day, plus $25/day IRS penalty  “Per Plan” and “Per Return” Penalty Caps  Small Plan (generally <100 participants)  $750/return  $1,500/plan  Large Plan (generally ≥100 participants)  $2,000/return  $4,000/plan  No “per sponsor” cap
  • 21. DFVCP: Eligibility  Must be subject to Title I of ERISA  5500 EZ filers not eligible  New pilot program from IRS  Must not have received written notice of failure to file annual return from DOL  IRS notice will not cut off eligibility
  • 22. DFVCP: Procedures  Two Step Process  File late returns through EFAST2  Even for pre-2009 returns  File DFVCP submission with payment of penalty  Top Hat Plans also eligible for DFVCP Relief  $750 penalty per filing, regardless of number of plans or the number of participants covered  Programs may be used in tandem
  • 23. Correction Programs  EPCRS  Employee Plans Compliance Resolution System  DFVCP  Delinquent Filer Voluntary Compliance Program  VFCP  Voluntary Fiduciary Correction Program
  • 24. VFCP: Overview  DOL Program  Available to correct:  Certain fiduciary breaches (or potential breaches), including:  Delinquent participant contributions and loan repayments  Prohibited transactions involving loans  Participant loans in default  Transactions with party-in-interest (especially real estate)  Improper payment of expenses by plan
  • 25. VFCP: Procedure  Conditions for relief  File application with DOL  Must involve type of breach eligible for VFCP relief  Eligibility requirements must be satisfied  Take appropriate corrective action
  • 26. © 2014 Fraser Trebilcock Davis & Dunlap, P.C. Fraser Trebilcock Davis & Dunlap, P.C. 124 W. Allegan Street, Suite 1000 Lansing, Michigan 48933 www.fraserlawfirm.com Phone: (517) 482-5800 Fax: (517) 482-0887 Fraser Trebilcock Davis & Dunlap, P.C. One Woodward Avenue, Suite 1550 Detroit, Michigan 48226 www.fraserlawfirm.com Phone: (313) 237-7300 Fax: (313) 961-1651 Brian Gallagher (517) 377-0886 bgallagher@fraserlawfirm.com QUESTIONS?

Editor's Notes

  1. October 26, 2011
  2. October 26, 2011
  3. Bay DB Bay DC MCC R/R
  4. October 26, 2011
  5. October 26, 2011