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To Err is Human – To Forgive is Up to the IRS in Rev Proc 2019-19

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The IRS recently issued its latest version of the Employee Plans Compliance Resolution System (“EPCRS”) in Rev. Proc. 2019-19.  The EPCRS is the IRS program that assists employers in correcting both operational and document failures with respect to qualified retirement plans.  There are several welcome changes to the new EPCRS, including:

  • Certain plan loan failures can now be self-corrected:
    • If a participant defaults on a loan, the participant can pay a single sum corrective payment equal to the amount (plus interest) that would have paid to the plan  absent the failure and re-amortize the outstanding balance either over the remaining payment schedule or over the maximum allowed period.
    • If the plan sponsor fails to obtain spousal consent, the plan sponsor must notify the affected spouse and obtain consent. If the spouse refuses to consent, the error can only be corrected through VCP.
    • If a participant obtains a number of loans that exceeds the number of loans permitted under the plan, the plan sponsor can adopt a plan amendment increasing the number of loans available.
  • Reporting deemed distributions – The IRS no longer requires plan sponsors to formally request relief before reporting a deemed distribution (Form 1099-R) in the year of correction instead of the year of failure.
  • Certain following failures can now be self-corrected:
    • A nonamender failure.
    • The failure to adopt good faith amendments.
    • The failure to adopt interim amendments.
  • Operational failures now can be self-corrected using a retroactive plan amendment if the amendment (a) increases benefits, rights, or features, (b) the increase is  available to all eligible employees, and (c) the increase is otherwise permitted under the Code.