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Revenue Procedure 2019-19 is the current
Revenue Procedure that governs the
Employee Plans Compliance Resolution
System Program (“EPCRS”). Rev. Proc.
2019-19 is effective as of April 19, 2019.
The prior Rev. Proc. For EPCRS purposes
was Rev. Proc. 2018-52.
Rev. Proc.
2019-19 –
Current
EPCRS
Guidance
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Voluntary Correction Program
(“VCP”)
- Prior to the VCP Program (which was the “forerunner” of the
EPCRS Program) if a Qualified Plan was not operated in
conformity with the general Plan qualification rules, the Plan ran
the risk of being disqualified. Disqualification was disastrous as it
resulted in:
- Disallowance of employer contribution deductions.
- Current taxation of earnings within the tax-exempt trust.
- Current income taxation of employees account balance/ accrued benefit.
- As a result of the VCP Program a qualified Plan could correct
whatever qualification failures were present and avoid Plan
disqualification.
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- A qualified Plan that has one or more Plan qualification defects
may correct these failures in accordance with the guidelines
set out under EPCRS and if formally submitted to the IRS will
receive in exchange thereof a Compliance Statement from the
IRS. The receipt of a Compliance Statement from the IRS
preserves the tax qualified status of the Plan.
Effect of EPCRS
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1. Self Correction Program (“SCP”) –
Correction of certain Plan failures can be
made without contacting the Internal
Revenue Service (“IRS”) or paying a
user fee.
2. Voluntary Correction Program (“VCP”) –
Formal corrections are made and a
Compliance Statement is received from
the IRS that approves such corrections.
3. Audit Closing Agreement Program
(“Audit CAP”) – Correction procedures
that are available as a result of one or
more defects discovered during the
middle of a Plan audit.
Three
Correction
Programs
Within
EPCRS
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Allowance of Self Correction by Plan
Amendment Under Rev. Proc. 2019-19
- Self Correction by Plan Amendment as to certain Plan document failures
are now allowed.
- Plan must have a current Favorable Determination Letter or a current IRS
Opinion Letter.
- The Amendment to the Plan must occur no later than the close of the
second Plan Year following the Plan Year in which the amendment should
have been adopted.
- Corrective amendments to resolve demographic failures that were not
timely adopted are not eligible for SCP.
- The late adoption of discretionary amendments is not considered a Plan
document failure.
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A Plan Sponsor may self correct for an operational failure of:
- The Plan amendment increases the benefits, rights or features (“BRF”)
of all Participants.
- The BRF is available to all employees.
- The increase is permissible under the Code and follows general
correction principals.
Allowance of Self Correction by Plan
Amendment for Operational Failures
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Self Correction of Plan Loans
- Loan in default may be treated as a deemed distribution in the
year of correction (as opposed to year of failure).
- A defaulted loan may be corrected with: (i) a lump sum catch-
up payment; (ii) re-amortized payments over the remaining life
of the loan; or (iii) a combination of the two.
- Failure to obtain spousal consent (if required) can be obtained
after the fact.
- A Plan may be amended retroactively to conform the Plan’s
terms to the Plan’s operations as far as the number of Plan
loans.
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A failure to obtain spousal consent to a distribution other than an
annuity can be obtained with retroactive consent.
Self Correction of Failures to
Obtain Spousal Consent
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The Tax Cuts and Jobs Act of 2017 (“TCJA”), the Bipartisan
Budget Act of 2018 (“BBA”) and recently issued final regulations
from the Department of Treasury have all made changes to the
rules governing Hardship distributions.
Changes in the Hardship
Distribution Rules
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Newly Created 7th Safe Harbor Event
Gives Rise to a Hardship Distribution
Prior to recently issued regulations a hardship distribution was
considered to be on account of an “immediate and heavy need”
if it pertained to:
- Medical expenses.
- The purchase a principal residence.
- The payment of tuition, room and board and educational fees.
- The payment is needed to prevent eviction or foreclosure on the
Participant’s principal residence.
- Funeral expenses.
- Expenses for the repair of damage to a Participant’s principal
residence.
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Newly Created 7th Safe Harbor Event
Gives Rise to a Hardship Distribution
As a result of the recent regulations, an amount distributed to
pay for any expenses and/or losses incurred by an Employee on
account of a disaster declared by the Federal Emergency
Management Agency (“FEMA”) as long as the Employee’s place
of employment or residence at the time of the disaster was
located in a FEMA area is deemed to be on account of an
immediately and heavy need.
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- Effective as of January 1, 2019:
- the exhaustion of all Plan loans prior to taking a hardship distribution is no
longer required.
- suspension of 401(k) deferrals and/or after tax contributions for 6 months is
no longer applicable.
- “Earnings after 1988” on elective deferral balances are eligible for hardship
distribution treatment.
- a Hardship distribution can be made from any vested account (including
Safe Harbor Contribution Accounts).
- Amendments must occur no later than December 31, 2021.
Changes to the Hardship Distribution
Rules as a Result of the BBA
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Upcoming Amendment & Restatement
Deadlines for Qualified Retirement Plans
- All Qualified Retirement Plans must generally be amended and
restated every 6 years.
- For Defined Benefit Pension Plans, the amendment and
restatement deadline is April 30, 2020.
- For Defined Contribution Plans that have an IRS Opinion Letter
dated March 31, 2014, as informally indicated by the IRS this
deadline is likely to be between August 1, 2020 and July 31, 2022.
- For certain defined contribution plans that are individually designed
and have been merged together a new favorable determination
letter can be obtained. See Rev. Proc. 2019-20
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Plan Changes as Part of the Upcoming
DC Plan Amendment & Restatement
- The definition of the term “Spouse” will be revised as set forth
in United States v. Windsor.
- Consider adding an “In Plan Roth Rollover” feature as a result
of the American Taxpayer Relief Act of 2012 (“ATRA”) and in
accordance with IRS Notice 2013-74.
- Final Department of Labor claims procedures for disability
determinations as to the distribution of benefits will be included
in the claim procedures within the Plan.
- Consider amending the Plan to incorporate required and/or
optional Hardship Distribution rule changes.
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- Consider Potential employer contribution formula changes.
- Cross Tested Formula.
- Triple Stack Match Formula.
- Coordination of an Employer Matching Contribution formula
with the repayment of Student Loans. PLR 201833012, which
was issued on August 17, 2018 and only applies to the
taxpayer requesting such a ruling, allows for such a provision.
Plan Changes as Part of the Upcoming
DC Plan Amendment & Restatement
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Setting Every Community Up for Retirement Enhancement Act
(SECURE Act) – Broad Proposed Legislation as to Retirement
Plan Reform
- Was previously passed in the House in May 2019 by a vote of 417-3.
- Is the first real major retirement plan legislation since the Pension
Protection Act of 2006.
- The Senate has a similar bill called the Retirement Enhancement
Securities Act (“RESA”).
SECURE Act
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- Currently sitting in limbo in the Senate. It is anticipated that such
legislation will be approved by the Senate either via:
- As an attachment to another larger spending bill.
- Unanimous Consent.
- Floor Time and Debate.
SECURE Act
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SECURE
Act
Out of the 29
new Provisions
Contained
Within the
SECURE Act 7
Provisions to be
Aware of are as
Follows:
1. Expansion of Small Employer access to
Retirement Plans via “multiple employer plans.”
2. Allow for more annuity options within a 401(k)
Plan.
3. Pushes back required minimum distributions
(“RMDs”) to 72 from 70½. RESA would push back
RMDs to 75.
4. Removes the age limit of 70½ for purposes of
contributing to a traditional IRA.
5. Distributions of up to $5,000 can be used for the
birth or adoption of a child and would not be
subject to the 10 percent early distribution tax.
6. Defined contribution plans must deliver a “lifetime
income disclosure” Notice to Participants at least
once every 12 months.
7. Removal of the “Stretch IRA.”
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www.FridayFirm.com
400 West Capitol Ave. Suite 2000 I Little Rock, AR 72201
3425 North Futrall Dr. Suite 103 I Fayetteville, AR 72703
3350 South Pinnacle Hills Pkwy. Suite 301 I Rogers, AR 72758
DAVID M. GRAF
Employee Benefits
501-370-1540
graf@fridayfirm.com
www.fridayfirm.com/attorney/graf
