Recently, the IRS issued Revenue Procedure 2021-30 to update its guidance on the correction program under the Employee Plans Compliance Resolution System (EPCRS). Under EPCRS, plan sponsors are permitted to correct failures using one of three correction methods: the Self-Correction Program (SCP), the Voluntary Correction Program (VCP), and the Audit Closing Agreement Program (“Audit CAP”).

Rev. Proc. 2021-30 replaces Rev. Proc. 2019-19 and is effective as of July 16, 2021. Highlights of the significant changes are as follows:

SCP Correction Period Extension. The Self-Correction Program (SCP) allows plan sponsors to self-correct both insignificant and significant operational failures; insignificant failures may be corrected at any time but self-correction of significant failures had to be completed by the last day of the second plan year following the plan year of the failure. Rev. Proc 2021-30 extends this deadline by one year, to the third plan year following the plan year of the failure. 

SCP Plan Amendments. Rev. Proc. 2021-30 expands the usage of retroactive amendments to correct operational failures under SCP if the amendment results in an increase of a benefit, right, or feature. The revenue procedure eliminates a prior requirement that all participants in the plan had to benefit by the retroactive amendment.

Safe Harbor Correction Method Extension. EPCRS allows for a safe harbor correction for certain elective deferral failures in 401(k) and 403(b) plans whereby an automatic contribution feature may be corrected without having the plan sponsor make a qualified nonelective contribution for missed deferrals. This safe harbor provision expired on December 30, 2020. Rev. Proc. 2021-30 extends this safe harbor correction method by three years, to December 31, 2023.

Recouping Overpayments. The revenue procedure allows plans to forego the return of overpayments less than $250 (the previous threshold was $100). In addition, a plan can recoup payments through a reduction of future benefits or an installment agreement rather than just a lump sum repayment. For defined benefit plans, it may not be necessary to recoup overpayment at all, depending on the plan’s funding level.

VCP Submissions. As of January 1, 2022, the anonymous VCP submission process is eliminated. Instead, the revenue procedure allows for a no-fee, anonymous pre-submission conference prior to a VCP submission to the IRS, where the plan sponsor can receive feedback from the IRS about the failure and proposed correction methods.

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