Effective December 29, 2022, Section 305 of SECURE 2.0 expands the ability for plan sponsors to self-correct certain plan failures under the Employee Plans Compliance Resolution System (“EPCRS”). Section 305 of SECURE 2.0 generally permits the self-correction of certain “eligible inadvertent failures” under EPCRS, including certain plan loan failures, provided that: (1) the failure is not identified by the Treasury prior to actions which demonstrate a specific commitment to implement the self-correction; and (2) the self-correction is completed within a “reasonable period” after the failure is identified.
Section 305 of SECURE 2.0 will effectively allow plan sponsors to correct eligible plan failures that are identified too late for self-correction under the existing EPCRS, which requires significant operational failures to be corrected by the end of the 3rd plan year following the plan year for which the failure occurs in order to be eligible for self-correction.
SECURE 2.0 further requires the Treasury to revise the existing EPCRS (currently set forth in Rev. Proc. 2021-30) to reflect the changes in Section 305 of SECURE 2.0 by December 29, 2024. In the meantime, the IRS issued Notice 2023-43, which provides interim guidance in advance of the EPCRS update. In part, Notice 2023-43 provides interim guidance that explains:
- The type of eligible inadvertent failures that plan sponsors may and may not self-correct under SECURE 2.0 before EPCRS is updated.
- The provisions of EPCRS that will not apply with respect to a self-correction of an eligible inadvertent failure under SECURE 2.0 before EPCRS is updated.
- How a “reasonable period” will be determined for purposes of correcting eligible inadvertent failures under SECURE 2.0 before EPCRS is updated.
Until further guidance is issued, there are still some open questions as to how Section 305 of SECURE 2.0 will be implemented.