The Internal Revenue Service (IRS) has issued interim guidance, provided in Notice 2023-43, that explains the expansion of plan sponsors’ ability to self-correct errors in qualified retirement plans. The Employee Plans Compliance Resolution System (EPCRS) sets forth the IRS’s guidance to plan sponsors on how to correct errors relating to qualified retirement plans. EPCRS contains options for employers to self-correct errors in certain circumstances (via the Self Correction Program, or SCP) or submit errors and corrections to the IRS for approval (via the Voluntary Correction Program, or VCP). Previously, self-correction was only available for certain insignificant errors or significant errors that were promptly identified and corrected. SECURE Act 2.0 expanded the availability of self-correction options and directed the IRS to update EPCRS accordingly no later than December 29, 2024. In the interim, Notice 2023-43 (Notice) assists taxpayers by providing guidance for plan sponsors until such time as the IRS updates EPCRS.
SECURE Act 2.0 made self-correction an option for all eligible inadvertent failures. An eligible inadvertent failure is a failure that occurs despite the existence of adequate practices and procedures. It does not include egregious failures, diversions or misuse of plan assets, or an error that is directly or indirectly related to an abusive tax avoidance transaction. Self-correction is available if the correction of the failure is made in conformity with the general principles under the Internal Revenue Code (Code) and EPCRS.
Plan sponsors may rely on the Notice from the date of its issuance (May 25, 2023) until EPCRS is updated. This means plan sponsors who have been waiting for additional guidance can begin correcting errors in accordance with SECURE Act 2.0 and the Notice. If a plan sponsor has attempted to correct an error after enactment of SECURE Act 2.0 (December 29, 2022) but prior to the issuance of the Notice, the IRS will accept corrections based on a good faith, reasonable interpretation of SECURE Act 2.0.
The interim guidance contained in the Notice does not address all open issues under SECURE Act 2.0. Within the Notice, the IRS has invited comments on the Notice and changes made to EPCRS pursuant to SECURE Act 2.0. The deadline for those comments is August 23, 2023, and additional IRS guidance is anticipated after the IRS has had the opportunity to review all comments.
If you are a plan sponsor who has identified errors relating to your qualified plan, or if you need assistance determining whether you have an error relating to your qualified plan, contact a BrownWinick employee benefits attorney regarding your correction options.
Special thanks to summer associate Allie Gilchrist for her assistance with this blog.