What Is The Self-Correction Program?
The IRS has developed the Employee Plans Compliance Resolution System (the “EPCPRS”) to provide guidelines and options available to plan sponsors to assist them in remedying mistakes made with respect to their 401(k) plans. The three components of the EPCPRS include the Self-Correction Program, the Voluntary Correction Program, and the Audit Closing Agreement Program.
- The Self-Correction Program (the “SCP”) is the first level option available and is appealing since it is offered with no fees to the plan sponsor. The following considerations should be taken into account when deciding if the SCP is the appropriate option to remedy a plan mistake:
- The plan administrator and/or the plan sponsor must have established policies and practices that are reasonably designed to maintain overall compliance with ERISA regulations.
- The SCP can only be used for curing operational mistakes, which occur when the plan was operated in a manner that was not in compliance with the plan document.
- Significant operational failures must be corrected within two years of the end of the year in which the failure occurred. Only operational failures considered to be insignificant, in the aggregate, can be cured through SCP after the two-year period.
- Proper documentation should be maintained to support the corrective actions taken.
Plan sponsors interested in availing themselves of the SCP are advised to consult with their ERISA legal counsel.
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The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your plan’s individual facts and circumstances.
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