# PART I. INTRODUCTION TO EMPLOYEE PLANS COMPLIANCE RESOLUTION

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Rev. Proc. 2021-30
TABLE OF CONTENTS
PART I. INTRODUCTION TO EMPLOYEE PLANS COMPLIANCE RESOLUTION
SYSTEM ........................................................................................................................ 6
SECTION 1. PURPOSE AND OVERVIEW ................................................................... 6
.01 Purpose ......................................................................................................... 6
.02 General principles underlying EPCRS ........................................................... 6
.03 Overview........................................................................................................ 7
SECTION 2. EFFECT OF THIS REVENUE PROCEDURE ON PROGRAMS .............. 7
.01 Effect on programs ........................................................................................ 7
.02 Correction of Overpayment (defined benefit plans) ....................................... 8
.03 Description of other modifications................................................................ 10
.04 Future enhancements .................................................................................. 11
PART II. PROGRAM EFFECT AND ELIGIBILITY ....................................................... 11
SECTION 3. EFFECT OF EPCRS; RELIANCE .......................................................... 11
.01 Effect of EPCRS on retirement plans .......................................................... 11
.02 Compliance statement ................................................................................. 12
.03 Excise and other taxes ................................................................................ 12
.04 Reliance....................................................................................................... 12
SECTION 4. PROGRAM ELIGIBILITY ........................................................................ 12
.01 EPCRS Programs........................................................................................ 12
.02 Effect of examination ................................................................................... 13
.03 SCP eligibility requirements relating to plan documents .............................. 13
.04 Established practices and procedures ......................................................... 14
.05 Correction by plan amendment.................................................................... 15
.06 Availability of correction for Employer Eligibility Failures and Demographic
Failures .............................................................................................................. 16
.07 Availability of correction for a terminated plan ............................................. 16
.08 Availability of correction for an Orphan Plan ................................................ 16
.09 Availability of correction for § 457(b) plans .................................................. 17
.10 Egregious failures ........................................................................................ 17
.11 Diversion or misuse of plan assets .............................................................. 17
.12 Abusive tax avoidance transactions ............................................................ 18

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PART III. DEFINITIONS, CORRECTION PRINCIPLES, AND RULES OF GENERAL
APPLICABILITY ........................................................................................................... 19
SECTION 5. DEFINITIONS ......................................................................................... 19
.01 Definitions for Qualified Plans...................................................................... 19
.02 Definitions for § 403(b) Plans ...................................................................... 23
.03 Definitions for Orphan Plans ........................................................................ 26
.04 Earnings ...................................................................................................... 26
.05 IRA .............................................................................................................. 26
.06 SEP ............................................................................................................. 26
.07 SIMPLE IRA Plan ........................................................................................ 27
.08 Under Examination ...................................................................................... 27
SECTION 6. CORRECTION PRINCIPLES AND RULES OF GENERAL
APPLICABILITY ........................................................................................................... 28
.01 Correction principles; rules of general applicability ...................................... 28
.02 Correction principles .................................................................................... 28
.03 Correction of an Employer Eligibility Failure ................................................ 35
.04 Correction of a failure to obtain spousal consent ......................................... 36
.05 Determination letter application not permitted ............................................. 37
.06 Special rules relating to Excess Amounts .................................................... 38
.07 Correction of plan loan failures .................................................................... 43
.08 Correction under statute or regulations ....................................................... 45
.09 Matters subject to excise or other taxes ...................................................... 46
.10 Correction for § 403(b) Plans....................................................................... 47
.11 Correction for SEPs and SIMPLE IRA Plans ............................................... 48
.12 Confidentiality and disclosure ...................................................................... 50
.13 No effect on other law .................................................................................. 50
PART IV. SELF-CORRECTION (SCP) ....................................................................... 51
SECTION 7. AVAILABILITY OF SCP FOR CERTAIN OPERATIONAL FAILURES
AND PLAN DOCUMENT FAILURES ........................................................................... 51
.01 In general..................................................................................................... 51
.02 Operational Failures .................................................................................... 51
.03 Plan Document Failures .............................................................................. 51
SECTION 8. SELF-CORRECTION OF INSIGNIFICANT OPERATIONAL FAILURES 52
.01 Requirements .............................................................................................. 52
.02 Factors......................................................................................................... 52
.03 Multiple failures............................................................................................ 52
.04 Examples ..................................................................................................... 52
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SECTION 9. SELF-CORRECTION OF CERTAIN SIGNIFICANT OPERATIONAL
FAILURES AND PLAN DOCUMENT FAILURES ......................................................... 54
.01 Requirements .............................................................................................. 54
.02 Correction period ......................................................................................... 54
.03 Substantial completion of correction ............................................................ 54
.04 Examples ..................................................................................................... 55
PART V. VOLUNTARY CORRECTION PROGRAM WITH IRS APPROVAL (VCP) ... 56
SECTION 10. VCP PROCEDURES ............................................................................ 56
.01 VCP pre-submission conference ................................................................. 56
.02 VCP requirements ....................................................................................... 57
.03 Identification of failures ................................................................................ 57
.04 Effect of VCP submission on examination ................................................... 57
.05 No concurrent examination activity .............................................................. 57
.06 Determination letter applications not related to a VCP submission ............. 58
.07 Processing of submission ............................................................................ 58
.08 Compliance statement ................................................................................. 61
.09 Effect of compliance statement on examination .......................................... 63
.10 Anonymous submissions not permitted ....................................................... 63
.11 Special rules relating to group submissions................................................. 63
.12 Multiemployer and multiple employer plans ................................................. 65
SECTION 11. SUBMISSION PROCEDURES FOR VCP ............................................ 65
.01 General rules ............................................................................................... 65
.02 Submission of model forms ......................................................................... 66
.03 Mandatory Submission Process using the Pay.gov website ........................ 67
.04 PDF file submission contents ...................................................................... 68
.05 User fee due at the time of VCP submission using the Pay.gov website ..... 71
.06 Additional user fee due for group submissions ............................................ 71
.07 Additional amounts due for certain submissions.......................................... 71
.08 Power of attorney requirements................................................................... 71
.09 Acknowledgement of filing ........................................................................... 72
.10 Maintenance of copies of submissions ........................................................ 72
.11 Assembling the submission ......................................................................... 72
SECTION 12. VCP USER FEES ................................................................................. 74
.01 User fees ..................................................................................................... 74

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PART VI. CORRECTION ON AUDIT (AUDIT CAP) .................................................... 74
SECTION 13. DESCRIPTION OF AUDIT CAP ........................................................... 74
.01 Audit CAP requirements .............................................................................. 74
.02 Payment of sanction .................................................................................... 74
.03 Additional requirements ............................................................................... 75
.04 Failure to reach resolution ........................................................................... 75
.05 Effect of closing agreement ......................................................................... 75
.06 Other procedural rules ................................................................................. 75
SECTION 14. AUDIT CAP SANCTION ........................................................................ 75
.01 Determination of sanction ............................................................................ 75
.02 Factors considered ...................................................................................... 75
.03 Transferred Assets ...................................................................................... 77
.04 Sanction for Nonamender Failures discovered during the determination letter
application process ............................................................................................ 77
PART VII. EFFECT ON OTHER DOCUMENTS; EFFECTIVE DATE; PAPERWORK
REDUCTION ACT ........................................................................................................ 78
SECTION 15. EFFECT ON OTHER DOCUMENTS.................................................... 78
SECTION 16. EFFECTIVE DATE ............................................................................... 78
SECTION 17. PUBLIC COMMENTS........................................................................... 79
SECTION 18. PAPERWORK REDUCTION ACT ........................................................ 79
DRAFTING INFORMATION ......................................................................................... 80
APPENDIX A ................................................................................................................ 81
OPERATIONAL FAILURES AND CORRECTION METHODS ..................................... 81
.01 General rule ................................................................................................. 81
.02 Failure to properly provide the minimum top-heavy benefit under § 416 to
non-key employees ........................................................................................... 82
.03 Failure to satisfy the ADP test set forth in § 401(k)(3), the ACP test set forth
in § 401(m)(2), or, for plan years beginning on or before December 31, 2001,
the multiple use test of § 401(m)(9) ................................................................... 82
.04 Failure to distribute elective deferrals in excess of the § 402(g) limit (in
contravention of § 401(a)(30)) ........................................................................... 82
.05 Exclusion of an eligible employee from all contributions or accruals under
the plan for one or more plan years. .................................................................. 83
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.06 Failure to timely pay the minimum distribution required under § 401(a)(9) .. 93
.07 Failure to obtain participant or spousal consent for a distribution subject to
the participant and spousal consent rules under §§ 401(a)(11), 411(a)(11), and
417 .................................................................................................................... 93
.08 Failure to satisfy the § 415 limits in a defined contribution plan ................... 94
.09 Orphan Plans; orphan contracts and other assets....................................... 95
APPENDIX B ................................................................................................................ 97
CORRECTION METHODS AND EXAMPLES; EARNINGS ADJUSTMENT METHODS
AND EXAMPLES ......................................................................................................... 97
SECTION 1. PURPOSE, ASSUMPTIONS FOR EXAMPLES AND SECTION
REFERENCES ............................................................................................................. 97
.01 Purpose ....................................................................................................... 97
.02 Assumptions for Examples .......................................................................... 97
.03 Designated Roth contributions..................................................................... 98
.04 Section references....................................................................................... 98
SECTION 2. CORRECTION METHODS AND EXAMPLES......................................... 98
.01 ADP/ACP Failures ....................................................................................... 98
.02 Exclusion of Otherwise Eligible Employees ............................................... 101
.03 Vesting Failures ......................................................................................... 117
.04 Section 415(c) Failures and Correction of Overpayments (Defined
Contribution Plans and § 403(b) Plans) ........................................................... 119
.05 Section 415(b) Failures and Correction of Overpayments (Defined Benefit
Plans) .............................................................................................................. 121
.06 § 401(a)(17) Failures ................................................................................. 129
.07 Correction by Amendment ......................................................................... 130
SECTION 3. EARNINGS ADJUSTMENT METHODS AND EXAMPLES .................. 133
.01 Earnings Adjustment Methods ................................................................... 133
.02 Examples ................................................................................................... 136

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PART I. INTRODUCTION TO EMPLOYEE PLANS COMPLIANCE RESOLUTION
SYSTEM
SECTION 1. PURPOSE AND OVERVIEW
.01 Purpose. This revenue procedure updates the comprehensive system of
correction programs for sponsors of retirement plans that are intended to satisfy the
requirements of § 401(a), 403(a), 403(b), 408(k), or 408(p) of the Internal Revenue
Code (the “Code”), but that have not met these requirements for a period of time. This
system, the Employee Plans Compliance Resolution System (“EPCRS”), permits Plan
Sponsors to correct these failures and thereby continue to provide their employees with
retirement benefits on a tax-favored basis. The components of EPCRS are the SelfCorrection Program (“SCP”), the Voluntary Correction Program (“VCP”), and the Audit
Closing Agreement Program (“Audit CAP”).
.02 General principles underlying EPCRS. EPCRS is based on the following
general principles:
•

Sponsors and other administrators of eligible plans should be encouraged to
establish administrative practices and procedures that ensure that these
plans are operated properly in accordance with the applicable requirements
of the Code.

•

Sponsors and other administrators of eligible plans should satisfy the
applicable plan document requirements of the Code.

•

Sponsors and other administrators should make voluntary and timely
correction of any plan failures, whether involving discrimination in favor of
highly compensated employees, plan operations, the terms of the plan
document, or adoption of a plan by an ineligible employer. Timely and
efficient correction protects participating employees by providing them with
their expected retirement benefits, including favorable tax treatment.

•

Voluntary compliance is promoted by establishing limited fees for voluntary
corrections approved by the Internal Revenue Service (“IRS”), thereby
reducing employers' uncertainty regarding their potential tax liability and
participants' potential tax liability.

•

Fees and sanctions should be graduated in a series of steps so that there is
always an incentive to correct promptly.
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•

Sanctions for plan failures identified on audit should be reasonable in light of
the nature, extent, and severity of the violation.

•

Administration of EPCRS should be consistent and uniform.

•

Sponsors should be able to rely on the availability of EPCRS in taking
corrective actions to maintain the tax-favored status of their plans.

.03 Overview. EPCRS includes the following basic elements:
•

Self-correction (SCP). A Plan Sponsor that has established compliance
practices and procedures may, at any time without paying any fee or
sanction, correct insignificant Operational Failures under a Qualified Plan, a
§ 403(b) Plan, a SEP, or a SIMPLE IRA Plan. For a SEP or SIMPLE IRA
Plan, SCP is available only if the SEP or SIMPLE IRA Plan is established
and maintained on a document approved by the IRS. In addition, in the case
of a Qualified Plan or § 403(b) Plan that satisfies the requirements of
sections 4.03 and 4.04, the Plan Sponsor generally may correct significant
Operational Failures and Plan Document Failures without payment of any
fee or sanction if the correction is made within the time specified in section
9.02.

•

Voluntary correction with IRS approval (VCP). A Plan Sponsor, at any time
before audit, may pay a limited fee and receive the IRS's approval for
correction of a Qualified Plan, § 403(b) Plan, SEP, or SIMPLE IRA Plan
failure. Under VCP, there are special procedures for anonymous
submissions and group submissions. However, effective January 1, 2022,
the anonymous submission procedure is eliminated. VCP submissions may
not be submitted on an anonymous basis on or after that date. Additionally,
an anonymous, no-fee, VCP pre-submission conference procedure is added,
effective January 1, 2022.

•

Correction on audit (Audit CAP). If a failure (other than a failure corrected
through SCP or VCP) is identified on audit, the Plan Sponsor may correct the
failure and pay a sanction. The sanction imposed will bear a reasonable
relationship to the nature, extent, and severity of the failure, taking into
account the extent to which correction occurred before audit.

SECTION 2. EFFECT OF THIS REVENUE PROCEDURE ON PROGRAMS
.01 Effect on programs. This revenue procedure modifies and supersedes Rev.
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Proc. 2019-19, 2019-19 I.R.B. 1086, the most recent prior consolidated statement of
the correction programs under EPCRS. This update to Rev. Proc. 2019-19 is a limited
update and is published primarily to:
(1) expand guidance on the recoupment of Overpayments;
(2) eliminate the anonymous submission procedure under VCP, effective
January 1, 2022;
(3) add an anonymous, no-fee, VCP pre-submission conference procedure,
effective January 1, 2022;
(4) extend the end of the SCP correction period for significant failures by one
year (which has the result of also extending the safe harbor correction
method for Employee Elective Deferral Failures lasting more than three
months but not beyond the extended SCP correction period for significant
failures);
(5) expand the ability of a Plan Sponsor to correct an Operational Failure under
SCP by plan amendment; and
(6) extend by three years the sunset of the safe harbor correction method
available for certain Employee Elective Deferral Failures associated with
missed elective deferrals for eligible employees who are subject to an
automatic contribution feature in a § 401(k) plan or § 403(b) Plan (from
December 31, 2020, to December 31, 2023).
.02 Correction of Overpayment (defined benefit plans). (1) In general. Rev.
Proc. 2015-27, 2015-16 I.R.B. 914, clarified the permissible methods for correcting
Overpayments under EPCRS by noting that, depending on the facts and
circumstances, correcting an Overpayment under EPCRS may not need to include
requesting that Overpayments be returned to the plan by plan participants and
beneficiaries. The Department of the Treasury (“Treasury Department”) and the IRS
also requested comments in Rev. Proc. 2015-27 on potential changes relating to the
recoupment of Overpayments. In light of comments received, the Treasury
Department and the IRS are modifying Rev. Proc. 2019-19 to further clarify and
expand options available for the recoupment of Overpayments.
(2) Modifications to current correction methods. Sections 6.06(3), 6.06(4), and
Appendix B, section 2.05, are revised to provide that Plan Sponsors may provide
Overpayment recipients the option of repaying an Overpayment in a single sum
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payment, through an installment agreement, or through an adjustment in future
payments.
(3) New correction methods. Section 6.06(3) is revised to provide two new
Overpayment correction methods, the funding exception correction method and the
contribution credit correction method. These methods reduce the need for defined
benefit plans to seek recoupment from Overpayment recipients and ease the process
for Overpayment recipients repaying Overpayments, while balancing the interest of
other participants in the plan.
(i) Funding exception correction method. Section 6.06(3)(d)(i) sets forth the new
funding exception correction method, which provides that corrective payments are not
required for a plan subject to § 436, provided that the plan’s certified or presumed
adjusted funding target attainment percentage (“AFTAP”) determined under § 436 that
is applicable to the plan at the date of correction is equal to at least 100 percent (or, in
the case of a multiemployer plan, the plan’s most recent annual funding certification
indicates that the plan is not in critical, critical and declining, or endangered status (as
defined in § 432), determined at the date of correction). Future benefit payments to an
Overpayment recipient must be reduced to the correct benefit payment amount. For
purposes of EPCRS, no further corrective payments from any party are required, no
further reductions to future benefit payments to an Overpayment recipient, or any
spouse or beneficiary of an Overpayment recipient, are permitted, and no further
corrective payments from an Overpayment recipient, or any spouse or beneficiary of an
Overpayment recipient, are permitted. See section 6.06(3)(d)(i) and Appendix B,
section 2.05(3).
(ii) Contribution credit correction method. Section 6.06(3)(d)(ii) sets forth the
new contribution credit correction method, which provides that the amount of
Overpayments required to be repaid to the plan is the amount of the Overpayments
reduced (but not below zero) by: (A) the cumulative increase in the plan’s minimum
funding requirements attributable to the Overpayments (including the increase
attributable to the overstatement of liabilities, whether funded through cash
contributions or through the use of a funding standard carryover balance, prefunding
balance, or funding standard account credit balance), beginning with (1) the plan year
for which the Overpayments are taken into account for funding purposes, through (2)
the end of the plan year preceding the plan year for which the corrected benefit
payment amount is taken into account for funding purposes; and (B) certain additional
contributions in excess of minimum funding requirements paid to the plan after the first
of the Overpayments was made. This reduction is referred to as a “contribution credit.”
Future benefit payments to an Overpayment recipient must be reduced to the correct
benefit payment amount. For purposes of EPCRS, if the amount of the Overpayments
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is reduced to zero after the contribution credit is applied, no further corrective
payments from any party are required, no further reductions to future benefit payments
to an Overpayment recipient, or any spouse or beneficiary of an Overpayment
recipient, are permitted, and no further corrective payments from an Overpayment
recipient, or any spouse or beneficiary of an Overpayment recipient, are permitted.
However, if a net Overpayment remains after the application of the contribution credit,
the Plan Sponsor or another party must take further action to reimburse the plan for the
remainder of the Overpayment. See section 6.06(3)(d)(ii) and Appendix B, section
2.05(4).
.03 Description of other modifications. The other modifications to Rev. Proc.
2019-19 that are made by this revenue procedure include the following -1. Eliminating the condition previously set forth in section 4.05(2)(a)(ii) (relating
to correction by plan amendment of Operational Failures under SCP for
Qualified Plans and § 403(b) Plans) that requires a plan amendment that
increases a benefit, right, or feature to apply to all participants eligible to
participate under the plan.
2. Increasing from $100 to $250 the threshold for certain de minimis amounts
for which a Plan Sponsor is not required to implement correction. See
sections 6.02(5)(c), 6.02(5)(e), and 6.11(5)(c).
3. Modifying the structure of section 6.06(4) and Appendix B, section 2.04, to
be more consistent with changes made to section 6.06(3) and Appendix B,
section 2.05, and to clarify the correction principles relating to Overpayments
from defined contribution plans and § 403(b) Plans.
4. Extending the end of the SCP correction period for significant failures (set
forth in section 9.02) from the last day of the second plan year following the
plan year for which the failure occurred to the last day of the third plan year
following the plan year for which the failure occurred (which has the result of
also extending the safe harbor correction method set forth in Appendix A,
section .05(9)(b) for Employee Elective Deferral Failures lasting more than
three months but not beyond the extended SCP correction period for
significant failures) and modifying the examples in section 9.04 to reflect this
extension.
5. Revising section 10.01 to add an option, effective January 1, 2022, for Plan
Sponsors to request a no-fee anonymous VCP pre-submission conference
under specified circumstances.
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6. Eliminating the anonymous submission procedure described in section 10.09
of Rev. Proc. 2019-19, which permits submission of a Qualified Plan,
§ 403(b) Plan, SEP, or SIMPLE IRA Plan under VCP without initially
identifying the applicable plan, the Plan Sponsor, or the Eligible
Organization, effective January 1, 2022, and making conforming revisions to
sections 11.04(16) and 11.08(2) to reflect the elimination of this procedure.
See section 10.10 of this revenue procedure.
7. Requiring that Audit CAP sanctions be paid through the Pay.gov website
(instead of by certified check or cashier’s check) beginning January 1, 2022.
See section 13.02.
8. Revising Appendix A, section .05(8), to extend by three years (from
December 31, 2020, to December 31, 2023) the sunset of the safe harbor
correction method available for certain Employee Elective Deferral Failures
associated with missed elective deferrals for eligible employees who are
subject to an automatic contribution feature in a § 401(k) plan or § 403(b)
Plan.
.04 Future enhancements.
It is expected that the Treasury Department and the IRS will continue to update
the EPCRS revenue procedure, in whole or in part, from time to time, including further
improvements to EPCRS based on comments received. Accordingly, the Treasury
Department and the IRS continue to invite further comments on how to improve
EPCRS. For information on how to submit comments, see section 17.
PART II. PROGRAM EFFECT AND ELIGIBILITY
SECTION 3. EFFECT OF EPCRS; RELIANCE
.01 Effect of EPCRS on retirement plans. For a Qualified Plan, a § 403(b) Plan,
a SEP, or a SIMPLE IRA Plan, if the eligibility requirements of section 4 are satisfied
and the Plan Sponsor corrects a failure in accordance with the applicable requirements
of SCP in section 7, VCP in section 10, or Audit CAP in section 13, the IRS will not
treat the plan as failing to satisfy the requirements of § 401(a), 403(b), 408(k), or
408(p), as applicable, because of the failure. For example, if the Plan Sponsor
corrects a failure in accordance with the requirements of this revenue procedure, the
plan will not thereby be treated as failing to satisfy § 401(a), 403(b), 408(k), or 408(p),
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as applicable, for purposes of applying §§ 3121(a)(5) (FICA taxes) and 3306(b)(5)
(FUTA taxes).
.02 Compliance statement. If a Plan Sponsor or Eligible Organization receives a
compliance statement under VCP, the compliance statement is binding upon the IRS
and the Plan Sponsor or Eligible Organization as provided in section 10.08.
.03 Excise and other taxes. See section 6.09 for rules relating to excise and
other taxes.
.04 Reliance. Taxpayers may rely on this revenue procedure, including the
relief described in section 3.01.
SECTION 4. PROGRAM ELIGIBILITY
.01 EPCRS Programs. (1) SCP. SCP is available to correct Operational
Failures and certain Plan Document Failures as follows:
(a) Operational Failures. A Plan Sponsor of a Qualified Plan or § 403(b) Plan
that is otherwise eligible for correction under SCP may use SCP to correct significant
and insignificant Operational Failures (including certain plan loan failures described in
section 6.07). Operational Failures that are significant may be corrected under SCP
only if the correction of the failure is completed or substantially completed (in
accordance with section 9.03) by the last day of the correction period described in
section 9.02.
(b) Plan Document Failures. A Plan Sponsor of a Qualified Plan or § 403(b)
Plan may use SCP to correct certain Plan Document Failures, as defined in section
5.01(2)(a) for a Qualified Plan and section 5.02(2)(a) for a § 403(b) Plan, that are
otherwise eligible for correction under SCP. A Plan Document Failure consisting of the
initial failure to adopt a Qualified Plan, or the failure to adopt a written § 403(b) Plan
timely in accordance with §1.403(b)-3(b)(3) and Notice 2009-3, 2009-2 I.R.B. 250, is
treated as a Plan Document Failure that is not eligible to be corrected under SCP. All
Plan Document Failures that are eligible to be corrected under SCP are treated as
significant; thus, the correction must be completed by the last day of the correction
period described in section 9.02.
(c) SEPs and SIMPLE IRA Plans. SEPs and SIMPLE IRA Plans are eligible to
be corrected under SCP only with respect to insignificant Operational Failures.

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(d) Demographic Failures and Employer Eligibility Failures. Demographic
Failures and Employer Eligibility Failures may not be corrected under SCP.
(2) VCP. Qualified Plans, § 403(b) Plans, SEPs, and SIMPLE IRA Plans are
eligible for correction under VCP. VCP provides general procedures for correction of
all Qualification Failures: Operational, Plan Document, Demographic, and Employer
Eligibility. VCP also provides general procedures for the correction of plan loan failures
(see section 6.07). Effective January 1, 2022, VCP submissions may not be submitted
on an anonymous basis.
(3) Audit CAP. Unless otherwise provided, Audit CAP is available for the
correction of Qualified Plans, § 403(b) Plans, SEPs, and SIMPLE IRA Plans for all
failures found on examination that have not been corrected in accordance with SCP or
VCP. Audit CAP also provides general procedures for the correction of plan loan
failures (see section 6.07).
(4) Eligibility for other arrangements. The IRS may extend EPCRS to other
arrangements.
(5) Appropriate use of programs. In a particular case, the IRS may decline to
make available one or more correction programs under EPCRS in the interest of sound
tax administration.
.02 Effect of examination. If the plan or Plan Sponsor is Under Examination,
VCP is not available. SCP is available only as follows:
(1) Insignificant Operational Failures. While the plan or Plan Sponsor is Under
Examination, insignificant Operational Failures may be corrected under SCP.
(2) Significant Operational Failures. If correction of significant Operational
Failures has been substantially completed (as described in section 9.03) before the
plan or Plan Sponsor is Under Examination, the Plan Sponsor may complete correction
of those failures under SCP.
.03 SCP eligibility requirements relating to plan documents. (1) Requirements
for Qualified Plans and § 403(b) Plans. The provisions of SCP relating to certain Plan
Document Failures, as described in section 4.01(1)(b), and significant Operational
Failures, as described in section 9, are available for a Qualified Plan that, as of the
date of correction, is the subject of a Favorable Letter. See section 5.01(4) for the
definition of Favorable Letter for a Qualified Plan. The provisions of SCP relating to
certain Plan Document Failures and significant Operational Failures are available for a
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§ 403(b) Plan if the conditions for being treated as having a Favorable Letter in section
6.10(2) are satisfied. See section 5.02(5) for the definition of Favorable Letter for a
§ 403(b) Plan.
(2) Requirements for SEPs and SIMPLE IRAs. The provisions of SCP relating
to insignificant Operational Failures (see section 8) are available for a SEP only if the
plan document consists of either (i) a valid Model Form 5305-SEP, Simplified
Employee Pension--Individual Retirement Accounts Contribution Agreement, or 5305ASEP, Salary Reduction Simplified Employee Pension--Individual Retirement Accounts
Contribution Agreement, adopted by an employer in accordance with the instructions
on the applicable form (see Rev. Proc. 2002-10, 2002-1 C.B. 401) or (ii) a prototype
SEP that has a current favorable opinion letter and that has been amended in
accordance with the procedures set forth in Rev. Proc. 2002-10. The provisions of
SCP relating to insignificant Operational Failures are available for a SIMPLE IRA Plan
only if the plan document consists of either (i) a valid Model Form 5305-SIMPLE,
Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)--for Use
with a Designated Financial Institution, or 5304-SIMPLE, Savings Incentive Match Plan
for Employees of Small Employers (SIMPLE)--Not for Use with a Designated Financial
Institution, adopted by an employer in accordance with the instructions on the
applicable form (see Rev. Proc. 2002-10) or (ii) a prototype SIMPLE IRA Plan that has
a current favorable opinion letter and that has been amended in accordance with the
procedures set forth in Rev. Proc. 2002-10.
.04 Established practices and procedures. To be eligible for SCP, the Plan
Sponsor or administrator of a plan must have established practices and procedures
(formal or informal) reasonably designed to promote and facilitate overall compliance in
form and operation with applicable Code requirements. For example, the plan
administrator of a Qualified Plan that may be top-heavy under § 416 may include in its
plan operating manual a specific annual step to determine whether the plan is topheavy and, if so, to ensure that the minimum contribution requirements of the topheavy rules are satisfied. A plan document alone does not constitute evidence of
established procedures. In order for a Plan Sponsor or administrator to use SCP,
these established procedures must have been in place and routinely followed, and an
Operational Failure or Plan Document Failure must have occurred through an oversight
or mistake in applying them. SCP also may be used in situations in which the
Operational Failure or Plan Document Failure occurred because the procedures that
were in place, while reasonable, were not sufficient to prevent the occurrence of the
failure. A plan that provides for elective deferrals and nonelective employer
contributions that are not matching contributions is not treated as failing to have
established practices and procedures to prevent the occurrence of a § 415(c) violation
in the case of a plan under which excess annual additions under § 415(c) are regularly
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corrected by return of elective deferrals to the affected employee within 9½ months
after the end of the plan’s limitation year. The correction, however, should not violate
another applicable Code requirement. In the case of a failure that relates to
Transferred Assets or to a plan assumed in connection with a corporate merger,
acquisition, or other similar employer transaction between the Plan Sponsor and the
sponsor of the transferor plan or the prior Plan Sponsor of an assumed plan, the plan is
considered to have established practices and procedures for the Transferred Assets if
such practices and procedures are in effect for the Transferred Assets by the end of
the first plan year that begins after the corporate merger, acquisition, or other similar
transaction. (See section 6.10(2) for special rules regarding established practices and
procedures for § 403(b) Plans.)
.05 Correction by plan amendment. (1) Availability of correction by plan
amendment in VCP or Audit CAP. A Plan Sponsor of a Qualified Plan or § 403(b) Plan
may use VCP or Audit CAP to correct Plan Document, Demographic, and Operational
Failures by plan amendment, including to correct an Operational Failure by plan
amendment to conform the terms of the plan to the plan’s prior operations, provided
that the amendment complies with the applicable Code requirements (including the
requirements of §§ 401(a)(4), 410(b), 411(d)(6), and 403(b)(12), as applicable). In
addition, a Plan Sponsor may adopt a plan amendment to reflect corrective action. For
example, if the plan failed to satisfy the actual deferral percentage (“ADP”) test
required under § 401(k)(3) and the Plan Sponsor must make qualified nonelective
contributions not already provided for under the plan, the plan may be amended to
provide for qualified nonelective contributions. As explained further in sections 6.05
and 10.08(2), the issuance of a compliance statement constitutes a determination that
the failure identified has been corrected, but does not constitute a determination that
the terms of the plan, including the corrective plan amendment, satisfy the qualification
requirements in form.
(2) Availability of correction by plan amendment in SCP. SCP is available for
corrections made by plan amendment, as provided in section 4.05(2)(a), (b), and (c).
In addition, a Plan Sponsor may adopt a plan amendment to reflect corrective action.
For example, if the plan failed to satisfy the ADP test required under § 401(k)(3) and
the Plan Sponsor must make qualified nonelective contributions not already provided
for under the plan, the plan may be amended to provide for qualified nonelective
contributions.
(a) Correction of Operational Failure by plan amendment for a Qualified Plan or
§ 403(b) Plan. A Plan Sponsor of a Qualified Plan or § 403(b) Plan may correct an
Operational Failure by plan amendment in order to conform the terms of the plan to the
plan’s prior operations only if the following conditions are satisfied:
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(i) The plan amendment would result in an increase of a benefit, right, or feature.
(ii) The provision of the increase in the benefit, right, or feature to participants is
permitted under the Code (including the requirements of §§ 401(a)(4), 410(b),
411(d)(6), and 403(b)(12), as applicable), and satisfies the correction principles of
section 6.02 and any other applicable rules of this revenue procedure.
(b) Operational Failure correction methods in accordance with Appendix B. In
addition to correction by plan amendment as described in section 4.05(2)(a), a Plan
Sponsor of a Qualified Plan or § 403(b) Plan may use SCP to correct Operational
Failures listed in Appendix B, section 2.07, by plan amendment to conform the terms of
the plan to the plan’s prior operations. Under SCP, these failures must be corrected in
accordance with the correction methods set forth in Appendix B, section 2.07.
(c) Plan Document Failures. A Plan Sponsor of a Qualified Plan or § 403(b)
Plan may use SCP to correct an eligible Plan Document Failure, as described in
section 4.01(1)(b), only if the following conditions are satisfied:
(i) The Qualified Plan or § 403(b) Plan has been issued a Favorable Letter, as
respectively defined in sections 5.01(4) and 5.02(5).
(ii) The Plan Sponsor satisfies the requirements in section 9 relating to
correcting a Plan Document Failure. Thus, for example, the Plan Sponsor must adopt
a corrective plan amendment by the end the correction period set forth in section 9.02.
.06 Availability of correction for Employer Eligibility Failures and Demographic
Failures. SCP is not available for a Plan Sponsor to correct Employer Eligibility
Failures or Demographic Failures.
.07 Availability of correction for a terminated plan. Correction of Qualification
Failures and § 403(b) Failures in a terminated plan may be made under VCP or Audit
CAP, whether or not the plan trust or contract is still in existence.
.08 Availability of correction for an Orphan Plan. A failure in an Orphan Plan
that is terminating may be corrected under VCP or Audit CAP if the party acting on
behalf of the plan is an Eligible Party, as defined in section 5.03(2). See, generally,
section 6.02(2)(e)(i). SCP is not available for correcting failures in Orphan Plans. In
the case of a terminating Orphan Plan, the IRS may, in its discretion, waive the user
fee. In such a case, the submission must include a request for a waiver of the user
fee. See section 11.04(14).
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.09 Availability of correction for § 457(b) plans. The IRS will accept submissions
relating to § 457(b) plans on a provisional basis outside of EPCRS through standards
that are similar to those that apply with respect to VCP filings under sections 10 and
11, as applicable, including procedures for filing a submission on the Pay.gov website.
The availability of correction is generally limited to plans that are sponsored by
governmental entities described in § 457(e)(1)(A). In the case of a § 457(b) plan that is
an unfunded deferred compensation plan established for the benefit of top hat
employees of a tax-exempt entity described in § 457(e)(1)(B), the IRS generally will not
enter into an agreement to address problems associated with such a plan. However,
the IRS may consider a submission for such a plan where, for example, the plan was
erroneously established to benefit the entity’s nonhighly compensated employees and
the plan has been operated in a manner that is similar to a Qualified Plan.
.10 Egregious failures. (1) In general. Egregious failures include: (a) a plan that
has consistently and improperly covered only highly compensated employees; (b) a
plan that provides more favorable benefits for an owner of the employer based on a
purported collective bargaining agreement where there has in fact been no good faith
bargaining between bona fide employee representatives and the employer (see Notice
2003-24, 2003-1 C.B. 853, with respect to good faith bargaining and welfare benefit
funds); or (c) a defined contribution plan where a contribution is made on behalf of a
highly compensated employee that is several times greater than the dollar limit set
forth in § 415(c).
(2) SCP. SCP is not available to correct Operational Failures or Plan Document
Failures that are egregious.
(3) VCP. VCP is available to correct egregious failures. However, the IRS
reserves the right to impose a sanction that may be larger than the user fee described
in Rev. Proc. 2021-4, 2021-1 I.R.B. 157 (and its annual successors). For this purpose,
an egregious failure would include any case in which the IRS concludes that the parties
controlling the plan recognized that the action taken would constitute a failure and the
failure either involves a substantial number of participants or beneficiaries or involves
participants who are predominantly highly compensated employees.
(4) Audit CAP. Audit CAP is available to correct egregious failures.
.11 Diversion or misuse of plan assets. SCP, VCP, and Audit CAP are not
available to correct failures relating to the diversion or misuse of plan assets.

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.12 Abusive tax avoidance transactions. (1) Effect on Programs. (a) SCP. With
respect to SCP, in the event that the plan or the Plan Sponsor has been a party to an
abusive tax avoidance transaction (as defined in section 4.12(2)), SCP is not available
to correct any Operational Failure or Plan Document Failure that is directly or indirectly
related to the abusive tax avoidance transaction.
(b) VCP. With respect to VCP, if the IRS determines that a plan or Plan
Sponsor was, or may have been, a party to an abusive tax avoidance transaction (as
defined in section 4.12(2)), then the matter will be discussed and coordinated with
appropriate IRS personnel. The IRS may determine that the plan or the Plan Sponsor
has been a party to an abusive tax avoidance transaction, and that the failures
addressed in the VCP submission are related to that transaction. In those situations,
the IRS will conclude the review of the submission without issuing a compliance
statement and will refer the case for examination. However, if the IRS determines that
the plan failures are unrelated to the abusive tax avoidance transaction or that no
abusive tax avoidance transaction occurred, then the IRS will permit the VCP
submission to address the failures identified in the VCP submission, and may issue a
compliance statement with respect to those failures. In no event may a compliance
statement be relied on for the purpose of concluding that the plan or Plan Sponsor was
not a party to an abusive tax avoidance transaction. In addition, even if it is concluded
that the failures can be addressed pursuant to a VCP submission, the IRS reserves the
right to make a referral of the abusive tax avoidance transaction matter for
examination.
(c) Audit CAP and SCP (for plans Under Examination). For plans Under
Examination, if the IRS determines that the plan or Plan Sponsor was, or may have
been, a party to an abusive tax avoidance transaction, the matter may be discussed
and coordinated with appropriate IRS personnel. With respect to plans Under
Examination, an abusive tax avoidance transaction includes a transaction described in
section 4.12(2) and any other transaction that the IRS determines was designed to
facilitate the impermissible avoidance of tax. Upon receiving a response from the
appropriate IRS personnel, (i) if the IRS determines that a failure is related to the
abusive tax avoidance transaction, the IRS reserves the right to conclude that neither
Audit CAP nor SCP is available for that failure, or (ii) if the IRS determines that
satisfactory corrective actions have not been taken with regard to the transaction, the
IRS reserves the right to conclude that neither Audit CAP nor SCP is available to the
plan.
(2) Abusive tax avoidance transaction defined. For purposes of section 4.12(1)
(except to the extent otherwise provided in section 4.12(1)(c)), an abusive tax
avoidance transaction means any listed transaction under §1.6011-4(b)(2) and any
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other transaction identified as an abusive transaction on the IRS website entitled “EP
Abusive Tax Transactions.”
PART III. DEFINITIONS, CORRECTION PRINCIPLES, AND RULES OF GENERAL
APPLICABILITY
SECTION 5. DEFINITIONS
The following definitions apply for purposes of this revenue procedure:
.01 Definitions for Qualified Plans. The definitions in this section 5.01 apply to
Qualified Plans.
(1) Qualified Plan. The term “Qualified Plan” means a plan intended to satisfy
the requirements of § 401(a) or 403(a).
(2) Qualification Failure. The term “Qualification Failure” means any failure that
adversely affects the qualification of a plan. There are four types of Qualification
Failures: (a) Plan Document Failures; (b) Operational Failures; (c) Demographic
Failures; and (d) Employer Eligibility Failures.
(a) Plan Document Failure. (i) In general. The term “Plan Document Failure”
means a plan provision (or the absence of a plan provision) that, on its face, violates
the requirements of § 401(a) or 403(a). A Plan Document Failure includes any
Qualification Failure that is a violation of the requirements of § 401(a) or 403(a) and
that is not an Operational Failure, Demographic Failure, or Employer Eligibility Failure.
This term includes a Nonamender Failure, a failure to adopt Good Faith Amendments,
and a failure to adopt Interim Amendments. A Plan Document Failure does not include
a failure to adopt a discretionary plan amendment by the plan amendment deadline set
forth in section 8.02 of Rev. Proc. 2016-37, 2016-29 I.R.B. 136, as modified by Rev.
Proc. 2017-41, 2017-29 I.R.B. 92, and Rev. Proc. 2020-40, 2020-38 I.R.B. 575 (or
section 5.05(2) of Rev. Proc. 2007-44, 2007-28 I.R.B. 54, as applicable). Pursuant to
section 4.01(1)(b), a Plan Document Failure consisting of the initial failure to adopt a
Qualified Plan may not be corrected under SCP.
(ii) Specific definitions relating to Plan Document Failures:
(A) “Good Faith Amendment” includes the EGTRRA good faith amendments
described in Notice 2001-42, 2001-2 C.B. 70, the amendment required for the plan to
comply with the final regulations under § 401(a)(9) (see Rev. Proc. 2002-29, 2002-1
C.B. 1176, as modified by Rev. Proc. 2003-10, 2003-1 C.B. 259), the amendment
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updating the mortality table to reflect the guidance in Rev. Rul. 2001-62, 2001-2
C.B. 632, and the amendment updating the definition of compensation, for purposes of
§ 415(c)(3), to include “deemed § 125 compensation” pursuant to Rev. Rul. 2002-27,
2002-1 C.B. 925. For rules relating to a failure to adopt a Good Faith Amendment, see
Rev. Proc. 2013-12.
(B) “Interim Amendment” means an amendment with respect to a disqualifying
provision that results in the failure of the plan to satisfy the qualification requirements of
the Code by reason of a change in those requirements that is effective after December
31, 2001, or that is integral to such disqualifying provision. See section 15.02 of Rev.
Proc. 2016-37, as modified, for Interim Amendment requirements for Pre-approved
Plans. For Interim Amendments required to be adopted in individually designed plans
before January 1, 2017 (or before February 1, 2017, for Cycle A plans), see section
5.04 of Rev. Proc. 2007-44.
(C) “Nonamender Failure” means a failure to adopt an amendment that corrects
a disqualifying provision described in §1.401(b)-1(b) within the applicable remedial
amendment period. In general, a disqualifying provision includes a provision in the
plan document that violates a qualification requirement of the Code or the absence of a
provision that causes the plan to fail to satisfy a qualification requirement of the Code.
A disqualifying provision also includes any provision designated by the Commissioner
as a disqualifying provision under §1.401(b)-1(b)(3). See sections 5 and 15 of Rev.
Proc. 2016-37, as modified. For an individually designed plan, a Nonamender Failure
includes the failure to timely amend for provisions that appear on the Required
Amendments List, as described in Rev. Proc. 2016-37, as modified. For purposes of
VCP, the initial failure to adopt a Qualified Plan is not considered a Nonamender
Failure.
(b) Operational Failure. The term “Operational Failure” means a Qualification
Failure (other than an Employer Eligibility Failure) that arises solely from the failure to
follow plan provisions. A failure to follow the terms of the plan providing for the
satisfaction of the requirements of § 401(k) and (m) is considered to be an Operational
Failure. A plan does not have an Operational Failure to the extent the plan is permitted
to be amended retroactively to reflect the plan's operations (for example, pursuant to
§ 401(b)). In the situation where a Plan Sponsor timely adopted an amendment and
the plan was not operated in accordance with the terms of such amendment, the plan
is considered to have an Operational Failure.
(c) Demographic Failure. The term “Demographic Failure” means a failure to
satisfy the requirements of § 401(a)(4), 401(a)(26), or 410(b) that is not an Operational
Failure or an Employer Eligibility Failure. The correction of a Demographic Failure
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generally requires a corrective amendment to the plan adding more benefits or
increasing existing benefits (see §1.401(a)(4)-11(g)).
(d) Employer Eligibility Failure. The term “Employer Eligibility Failure” means
the adoption of a plan intended to include a qualified cash or deferred arrangement
under § 401(k) by an employer that fails to satisfy the employer eligibility requirements
to establish a § 401(k) plan. An Employer Eligibility Failure is not a Plan Document,
Operational, or Demographic Failure.
(3) Excess Amount; Excess Allocations; Overpayment. (a) Excess Amount.
The term “Excess Amount” means a Qualification Failure due to a contribution,
allocation, or similar credit that is made on behalf of a participant or beneficiary to a
plan in excess of the maximum amount permitted to be contributed, allocated, or
credited on behalf of the participant or beneficiary under the terms of the plan or that
exceeds a limitation on contributions or allocations provided in the Code or regulations.
Excess Amounts include: (i) an elective deferral or after-tax employee contribution that
is in excess of the maximum contribution under the plan; (ii) an elective deferral or
after-tax employee contribution made in excess of the limitation under § 415; (iii) an
elective deferral in excess of the limitation of § 402(g); (iv) an excess contribution or
excess aggregate contribution under § 401(k) or (m); (v) an elective deferral or aftertax employee contribution that is made with respect to compensation in excess of the
limitation of § 401(a)(17); and (vi) any other employer contribution that exceeds a
limitation under § 401(m) (but only with respect to the forfeiture of nonvested matching
contributions that are excess aggregate contributions), 411(a)(3)(G), or 415, or that is
made with respect to compensation in excess of the limitation under § 401(a)(17).
However, an Excess Amount does not include a contribution, allocation, or other credit
that is made pursuant to a correction method provided under this revenue procedure
for a different Qualification Failure. Excess Amounts are limited to contributions,
allocations, or annual additions under a defined contribution plan, after-tax employee
contributions to a defined benefit plan, and contributions or allocations that are to be
made to a separate account (with actual Earnings) under a defined benefit plan. See
generally section 6.06 for the treatment and correction of certain Excess Amounts.
(b) Excess Allocation. The term “Excess Allocation” means an Excess Amount
for which the Code or regulations do not provide any corrective mechanism. Excess
Allocations include Excess Amounts as defined in section 5.01(3)(a)(i), (ii), (v), and (vi)
(except with respect to § 401(m) or 411(a)(3)(G) violations). Excess Allocations must
be corrected in accordance with section 6.06(2).
(c) Overpayment. The term “Overpayment” means a Qualification Failure due to
a payment being made to a participant or beneficiary (“Overpayment recipient”) that
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exceeds the amount payable to the Overpayment recipient under the terms of the plan
or that exceeds a limitation provided in the Code or regulations. Overpayments include
both payments from a defined benefit plan and payments from a defined contribution
plan that are either not made from the Overpayment recipient’s account under the plan
or not permitted to be paid under the Code, the regulations, or the terms of the plan.
However, an Overpayment does not include a payment that is made pursuant to a
correction method provided under this revenue procedure for a different Qualification
Failure. Overpayments must be corrected in accordance with section 6.06(3) for
defined benefit plans and section 6.06(4) for defined contribution plans.
(4) Favorable Letter. With respect to a Qualified Plan, the term “Favorable
Letter” is defined in the following manner.
(a) Favorable Letter for individually designed Qualified Plans. In the case of an
individually designed Qualified Plan, the term “Favorable Letter” means a
determination letter issued with respect to the plan.
(b) Favorable Letter for Pre-approved Plans. In the case of a Pre-approved
Plan, the term “Favorable Letter” means a favorable opinion or advisory letter issued
with respect to the most recently expired six-year remedial amendment cycle under
Rev. Proc. 2016-37, as modified. In the case of a terminated Pre-approved Plan, the
plan is treated as having a favorable opinion letter or advisory letter if the plan is
terminated prior to the expiration of the plan’s current remedial amendment cycle
determined under the provisions of Rev. Proc. 2016-37, as modified, and the plan was
amended to reflect the qualification requirements that applied as of the date of
termination.
(5) Maximum Payment Amount. The term “Maximum Payment Amount” means
a monetary amount that is approximately equal to the tax the IRS could collect upon
plan disqualification and is the sum for the open taxable years of the:
(a) tax on the trust (Form 1041, U.S. Income Tax Return for Estates and Trusts)
(and any interest or penalties applicable to the trust return);
(b) additional income tax resulting from the loss of employer deductions for plan
contributions (and any interest or penalties applicable to the Plan Sponsor's return);
(c) additional income tax resulting from income inclusion for participants in the
plan (Form 1040, U.S. Individual Income Tax Return), including the tax on plan
distributions that have been rolled over to other qualified trusts (as defined in
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§ 402(c)(8)(A)) or eligible retirement plans (as defined in § 402(c)(8)(B)) and any
interest or penalties applicable to the participants’ returns;
(d) in the case of any participant loan that did not comply with the requirements
of § 72(p)(2), the tax the IRS could collect as a result of the loan not being excluded
from gross income under § 72(p)(2); and
(e) any other tax that results from a Qualification Failure that would apply but for
correction under this revenue procedure.
(6) Plan Sponsor. The term “Plan Sponsor” means the employer that
establishes or maintains a Qualified Plan for its employees.
(7) Transferred Assets. The term “Transferred Assets” means plan assets that
were received, in connection with a corporate merger, acquisition, or other similar
employer transaction, by the plan in a transfer (including a merger or consolidation of
plan assets) under § 414(l) from a plan sponsored by an employer that was not a
member of the same controlled group as the Plan Sponsor immediately prior to the
corporate merger, acquisition, or other similar employer transaction. If a transfer of
plan assets related to the same employer transaction is accomplished through several
transfers, then the date of the transfer is the date of the first transfer.
(8) Pre-approved Plan. For purposes of this revenue procedure, the term “Preapproved Plan” means:
(a) a master plan, a prototype plan, or a volume submitter plan as described in
Rev. Proc. 2015-36, 2015-27 I.R.B. 20, sections 4.01, 4.02 and 13.01, respectively;
and
(b) a pre-approved plan described in section 4.07 of Rev. Proc. 2017-41,
2017-29 I.R.B. 92.
.02 Definitions for § 403(b) Plans. The definitions in this section 5.02 apply to
§ 403(b) Plans. For § 403(b) Plans, the definitions under Rev. Proc. 2008-50 apply to
failures that occurred in taxable years beginning before January 1, 2009.
(1) Section 403(b) Plan. The term “§ 403(b) Plan” means a plan or program
intended to satisfy the requirements of § 403(b).
(2) Section 403(b) Failure. The term “§ 403(b) Failure” means a failure that
adversely affects the exclusion from income provided by § 403(b). There are four
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types of § 403(b) Failures: (a) Plan Document Failures; (b) Operational Failures; (c)
Demographic Failures; and (d) Employer Eligibility Failures.
(a) Plan Document Failure. The term “Plan Document Failure” means a plan
provision (or the absence of a plan provision) that, on its face, violates the
requirements of § 403(b). Thus, for example, the failure of a plan to be adopted in
written form or to be amended to reflect a new requirement within the plan's applicable
remedial amendment period is a Plan Document Failure. If a plan has not been timely
or properly amended during an applicable remedial amendment period with respect to
provisions required to maintain the status of the plan under § 403(b), the plan has a
Plan Document Failure. For purposes of this revenue procedure, a Plan Document
Failure includes any § 403(b) Failure that adversely affects the status of the plan under
§ 403(b) and that is not an Operational Failure, Demographic Failure, or Employer
Eligibility Failure. Pursuant to section 4.01(1)(b), a Plan Document Failure consisting
of the failure to adopt a written § 403(b) Plan timely in accordance with
§1.403(b)-3(b)(3) and Notice 2009-3 may not be corrected under SCP.
(b) Operational Failure. The term “Operational Failure” means a § 403(b)
Failure (other than an Employer Eligibility Failure) that arises solely from the failure to
follow plan provisions. A failure to follow the terms of the plan providing for the
satisfaction of the requirements of §§ 403(b)(12)(ii) (relating to the availability of
elective deferral contributions) and 401(m) (as applied to § 403(b) Plans pursuant to
§ 403(b)(12)(A)(i)) is an Operational Failure. A plan does not have an Operational
Failure to the extent the plan is permitted to be amended retroactively to reflect the
plan's operations.
(c) Demographic Failure. The term “Demographic Failure” means a failure to
satisfy the requirements of § 401(a)(4), 401(a)(26), or 410(b) (as applied to § 403(b)
Plans pursuant to § 403(b)(12)(A)(i)) that is not an Operational Failure or an Employer
Eligibility Failure. The correction of a Demographic Failure generally requires a
corrective amendment to the plan adding more benefits or increasing existing benefits
(see §1.401(a)(4)-11(g)).
(d) Employer Eligibility Failure. The term “Employer Eligibility Failure” means
the adoption of a plan intended to satisfy the requirements of § 403(b) by a Plan
Sponsor that is not a tax-exempt organization described in § 501(c)(3) or a public
educational organization described in § 170(b)(1)(A)(ii). An Employer Eligibility Failure
is not a Plan Document, Operational, or Demographic Failure.
(3) Excess Amount. The term “Excess Amount” means a contribution or other
credit that is made on behalf of a participant or beneficiary to a plan in excess of the
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maximum amount permitted to be contributed or credited on behalf of the participant or
beneficiary under the terms of the plan or that exceeds a limitation on contributions
provided in the Code or regulations. The term “Excess Amount” includes any amount
in excess of the amount permitted under the requirements of § 402(g), 401(m), or 415.
A contribution in excess of the limitation of § 415(c) is not an Excess Amount (or a
§ 403(b) Failure) if that excess is maintained in a separate account in accordance with
the rules in the regulations under §§ 403(b) and 415. Such separate account is
considered to be a § 403(c) annuity contract (or, if applicable, an amount to which § 61,
83, or 402(b) applies). A contribution in excess of the limitation of § 415(c) that is not
maintained in a separate account in accordance with the rules set forth in regulations
under §§ 403(b) and 415 is an Excess Amount. Thus, the correction principles in
section 6.06 apply.
(4) Overpayment. The term “Overpayment” means a § 403(b) Failure due to a
payment being made to a participant or beneficiary (“Overpayment recipient”) that
exceeds the amount payable to the Overpayment recipient under the terms of the plan
or that exceeds a limitation provided in the Code or regulations. Overpayments include
payments made from the Overpayment recipient’s § 403(b) custodial account or
annuity contract under the plan that are not permitted to be paid under the Code, the
regulations, or the terms of the plan. However, an Overpayment does not include a
payment that is made pursuant to a correction method provided under this revenue
procedure for a different § 403(b) Failure. Overpayments must be corrected in
accordance with section 6.06(4).
(5) Favorable Letter. The term “Favorable Letter” means a Favorable Letter as
described in section 6.10(2).
(6) Maximum Payment Amount. The term “Maximum Payment Amount” means
a monetary amount that is approximately equal to the tax the IRS could collect as a
result of the § 403(b) Failure and is the sum for the open taxable years of the:
(a) additional income tax resulting from income inclusion for employees or other
participants (Form 1040), including the tax on distributions that have been rolled over
to other qualified trusts (as defined in § 402(c)(8)(A)) or eligible retirement plans (as
defined in § 402(c)(8)(B)) and any interest or penalties applicable to the participants’
returns; and
(b) any other tax that results from a § 403(b) Failure that would apply but for
correction under this revenue procedure.

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(7) Plan Sponsor. The term “Plan Sponsor” means the employer that offers a
§ 403(b) Plan to its employees.
(8) Section 403(b) Pre-approved Plan. The term “§ 403(b) Pre-approved Plan”
means a plan described in section 3.17 of Rev. Proc. 2013-22, 2013-18 I.R.B. 985.
.03 Definitions for Orphan Plans.
(1) Orphan Plan. With respect to VCP and Audit CAP, the term “Orphan Plan”
means any Qualified Plan, § 403(b) Plan, or other plan with respect to which an
“Eligible Party” (defined in section 5.03(2)) has determined that the Plan Sponsor (a)
no longer exists, (b) cannot be located, or (c) is unable to maintain the plan. However,
the term “Orphan Plan” does not include any plan subject to Title I of the Employee
Retirement Income Security Act of 1974 (“ERISA”) that is terminated pursuant to
29 CFR 2578.1 of the Department of Labor regulations governing the termination of
abandoned individual account plans.
(2) Eligible Party. The term “Eligible Party” means:
(a) A court appointed representative with authority to terminate the plan and
dispose of the plan’s assets;
(b) In the case of an Orphan Plan under investigation by the Department of
Labor, a person or entity determined by the Department of Labor to have accepted
responsibility for terminating the plan and distributing the plan's assets; or
(c) In the case of a Qualified Plan to which Title I of ERISA has never applied, a
surviving spouse who is the sole beneficiary of a plan that provided benefits to a
participant who was (i) the sole owner of the business that sponsored the plan and (ii)
the only participant in the plan.
.04 Earnings. The term “Earnings” refers to the adjustment of a principal
amount to reflect subsequent investment gains and losses, unless otherwise provided
in a specific section of this revenue procedure.
.05 IRA. The term “IRA” means an individual retirement account (as defined in
§ 408(a)) or an individual retirement annuity (as defined in § 408(b)).
.06 SEP. The term “SEP” means a plan intended to satisfy the requirements of
§ 408(k). For purposes of this revenue procedure, the term SEP also includes a salary
reduction SEP (“SARSEP”) described in § 408(k)(6), if applicable.
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.07 SIMPLE IRA Plan. The term “SIMPLE IRA Plan” means a plan intended to
satisfy the requirements of § 408(p).
.08 Under Examination. (1) The term “Under Examination” means: (a) a plan
that is under an Employee Plans examination (that is, an examination of a Form 5500
series or other Employee Plans examination); (b) a Plan Sponsor that is under an
Exempt Organizations examination (that is, an examination of a Form 990 series or
other Exempt Organizations examination); or (c) a plan that is under investigation by
the Criminal Investigation Division of the IRS.
(2) A plan that is under an Employee Plans examination includes any plan for
which the Plan Sponsor, or an authorized representative, has received verbal or written
notification from Employee Plans of an impending Employee Plans examination, or of
an impending referral for an Employee Plans examination, and also includes any plan
that has been under an Employee Plans examination and is in Appeals or in litigation
for issues raised in an Employee Plans examination. A plan is considered to be Under
Examination if it is aggregated for purposes of satisfying the nondiscrimination
requirements of § 401(a)(4), the minimum coverage requirements of § 410(b), or the
requirements of § 403(b)(12)(A)(i), with any plan that is Under Examination. In
addition, a plan is considered to be Under Examination with respect to a failure of a
qualification requirement (other than those described in the preceding sentence) if the
plan is aggregated with another plan for purposes of satisfying that qualification
requirement (for example, § 401(a)(30), 415, or 416) and that other plan is Under
Examination. For example, assume Plan A has a § 415 failure, Plan A is aggregated
with Plan B only for purposes of § 415, and Plan B is Under Examination. In this case,
Plan A is considered to be Under Examination with respect to the § 415 failure.
However, if Plan A has a failure relating to the spousal consent rules under § 417 or
the vesting rules of § 411, Plan A is not considered to be Under Examination with
respect to the § 417 or 411 failure. For purposes of this revenue procedure, the term
aggregation does not include consideration of benefits provided by various plans for
purposes of the average benefits test set forth in § 410(b)(2).
(3) An Employee Plans examination also includes a case in which a Plan
Sponsor has submitted any Form 5300 (Application for Determination for Employee
Benefit Plan), Form 5307 (Application for Determination for Adopters of Modified
Volume Submitter Plans), or Form 5310 (Application for Determination for Terminating
Plan) and the Employee Plans agent notifies the Plan Sponsor, or an authorized
representative, of possible failures, whether or not the Plan Sponsor is officially notified
of an “examination.” This would include a case where, for example, a Plan Sponsor
has applied for a determination letter on plan termination, and an Employee Plans
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agent notifies the Plan Sponsor that there are partial termination concerns. In addition,
if, during the review process, the agent requests additional information that indicates
the existence of a failure not previously identified by the Plan Sponsor, the plan is
considered to be under an Employee Plans examination. If, in such a case, the
determination letter request under review is subsequently withdrawn, the plan is
nevertheless considered to be under an Employee Plans examination for purposes of
eligibility under SCP and VCP with respect to those issues raised by the agent
reviewing the determination letter application. The fact that a Plan Sponsor voluntarily
submits a determination letter application does not constitute a voluntary identification
of a failure to the IRS. In order to be eligible for VCP, the Plan Sponsor (or the
authorized representative) must identify each failure, in writing, to the reviewing agent
before the agent recognizes the existence of the failure or addresses the failure in
communications with the Plan Sponsor (or the authorized representative).
(4) A Plan Sponsor that is under an Exempt Organizations examination includes
any Plan Sponsor that has received (or whose authorized representative has received)
verbal or written notification from Exempt Organizations of an impending Exempt
Organizations examination or of an impending referral for an Exempt Organizations
examination and also includes any Plan Sponsor that has been under an Exempt
Organizations examination and is now in Appeals or in litigation for issues raised in an
Exempt Organizations examination.
SECTION 6. CORRECTION PRINCIPLES AND RULES OF GENERAL
APPLICABILITY
.01 Correction principles; rules of general applicability. The general correction
principles in section 6.02 and rules of general applicability in sections 6.03 through
6.13 apply for purposes of this revenue procedure.
.02 Correction principles. Generally, a failure is not corrected unless full
correction is made with respect to all participants and beneficiaries, and for all taxable
years (whether or not the taxable year is closed). Even if correction is made for a
closed taxable year, the tax liability associated with that year will not be redetermined
because of the correction. Correction is determined taking into account the terms of
the plan at the time of the failure. Correction should be accomplished taking into
account the following principles:
(1) Restoration of benefits. The correction method should restore the plan to the
position it would have been in had the failure not occurred, including restoration of
current and former participants and beneficiaries to the benefits and rights they would
have had if the failure had not occurred.
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(2) Reasonable and appropriate correction. The correction should be
reasonable and appropriate for the failure. Depending on the nature of the failure,
there may be more than one reasonable and appropriate correction for the failure. For
Qualified Plans and § 403(b) Plans, any correction method permitted under Appendix A
or Appendix B is deemed to be a reasonable and appropriate method of correcting the
related failure. Any correction method permitted under Appendix A or Appendix B
applicable to a SEP, or a SIMPLE IRA Plan is similarly deemed to be a reasonable and
appropriate method of correcting the related failure. If a plan has a different but
analogous failure to one set forth in Appendix A or B (such as the failure to provide a
matching contribution by a governmental plan that is not subject to § 401(m)), then the
analogous correction method under Appendix A or B is generally available to correct
the failure. Whether any other particular correction method is reasonable and
appropriate is determined taking into account the applicable facts and circumstances
and the following principles:
(a) The correction method should, to the extent possible, resemble one already
provided for in the Code, regulations, or other guidance of general applicability. For
example, for Qualified Plans and § 403(b) Plans, the correction method set forth in
§1.402(g)-1(e)(2) would be the typical means of correcting a failure under § 402(g).
(b) The correction method should keep plan assets in the plan, except to the
extent the Code, regulations, or other guidance of general applicability provide for
correction by distribution to participants or beneficiaries or return of assets to the
employer. For example, if an excess allocation (not in excess of the § 415 limits) made
under a Qualified Plan was made for a participant under a plan (other than a § 401(k)
plan), the excess should be reallocated to other participants or, depending on the facts
and circumstances, used to reduce future employer contributions.
(c) The correction method for failures relating to nondiscrimination should
provide benefits for nonhighly compensated employees. For example, for Qualified
Plans, the correction method set forth in §1.401(a)(4)-11(g) (rather than methods
making use of the special testing provisions set forth in §1.401(a)(4)-8 or
§1.401(a)(4)-9) would be the typical means of correcting a failure to satisfy
nondiscrimination requirements. Similarly, the correction of a failure to satisfy the
requirements of § 401(k)(3) or 401(m)(2), or, for plan years beginning on or before
December 31, 2001, the multiple use test of § 401(m)(9) (relating to nondiscrimination),
solely by distributing excess amounts to highly compensated employees would not be
the typical means of correcting such a failure.

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(d) The correction method should not violate another applicable specific
requirement of § 401(a) or 403(b) (for example, § 401(a)(4), 411(d)(6), or 403(b)(12),
as applicable), 408(k) for SEPs, or 408(p) for SIMPLE IRA Plans, or a parallel
requirement in Part 2 of Subtitle B of Title I of ERISA (for plans that are subject to Part
2 of Subtitle B of Title I of ERISA). If an additional failure is nevertheless created as a
result of the use of a correction method in this revenue procedure, then that failure also
must be corrected in conjunction with the use of that correction method and in
accordance with the requirements of this revenue procedure.
(e) If a correction method is one that another government agency has authorized
with respect to a violation of legal requirements within its interpretive authority and that
correction relates to a violation for which there is a failure to which this revenue
procedure applies, then the IRS may take the correction method of the other
governmental agency into account for purposes of this revenue procedure. For
example:

(i) If the plan is subject to ERISA, for a failure that results from the employer
having ceased to exist, the employer no longer maintaining the plan, or similar
reasons, the permitted correction is to terminate the plan and distribute plan assets to
participants and beneficiaries in accordance with standards and procedures
substantially similar to those set forth in 29 CFR 2578.1 of the Department of Labor
regulations (relating to abandoned plans). This correction must satisfy four conditions.
First, the correction must comply with standards and procedures substantially similar to
those set forth in 29 CFR 2578.1. Second, the qualified termination administrator,
based on plan records located and updated in accordance with the Department of
Labor regulations, must have reasonably determined whether, and to what extent, the
survivor annuity requirements of §§ 401(a)(11) and 417 apply to any benefit payable
under the plan and must take reasonable steps to comply with those requirements (if
applicable). Third, each participant and beneficiary must have been provided a
nonforfeitable right to his or her accrued benefits as of the date of deemed termination
under the Department of Labor regulations, subject to Earnings between that date and
the date of distribution. Fourth, participants and beneficiaries must receive notification
of their rights under § 402(f). In addition, notwithstanding correction under this revenue
procedure, the IRS reserves the right to pursue appropriate remedies under the Code
against any party who is responsible for the plan, such as the Plan Sponsor, plan
administrator, or owner of the business, even in its capacity as a participant or
beneficiary under the plan. See also Appendix A, section .09(1), for parallel rules for
plans that are not subject to ERISA.
(ii) In the case of a violation of the fiduciary standards imposed by Part 4 of
Subtitle B of Title I of ERISA, correction under the Voluntary Fiduciary Correction
Program (VFCP) established by the Department of Labor for a fiduciary violation for
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which there is a similar failure under this revenue procedure would generally be taken
into account as correction under this revenue procedure. (See also section 7.3(b) of
the Department of Labor’s VFCP under which correction of a defaulted participant loan
that provides for repayment in accordance with § 72(p)(2) requires only submission of
the correction under VCP and inclusion of the VCP compliance statement (with proof of
any required corrective payment).)
(3) Consistency requirement. Generally, if more than one correction method is
available to correct a type of failure for a plan year (or if there are alternative ways to
apply a correction method), the correction method (or one of the alternative ways to
apply the correction method) should be applied consistently in correcting all failures of
that type for that plan year. Similarly, Earnings adjustment methods generally should
be applied consistently with respect to corrective contributions or allocations for a
particular type of failure for a plan year. In the case of a group submission, the
consistency requirement applies on a plan-by-plan basis.
(4) Principles regarding corrective allocations and corrective distributions. The
following principles apply where an appropriate correction method includes the use of
corrective allocations or corrective distributions:
(a) Corrective allocations under a defined contribution plan should be based
upon the terms of the plan and other applicable information at the time of the failure
(including the compensation that would have been used under the plan for the period
with respect to which a corrective allocation is being made) and should be adjusted for
Earnings and forfeitures that would have been allocated to the participant's account if
the failure had not occurred. However, a corrective allocation is not required to be
adjusted for losses. Accordingly, corrective allocations must include gains and may be
adjusted for losses. For additional information, see Appendix B, section 3, Earnings
Adjustment Methods and Examples.
(b) A corrective allocation to a participant's account because of a failure to make
a required allocation in a prior limitation year is not considered an annual addition with
respect to the participant for the limitation year in which the correction is made, but is
considered an annual addition for the limitation year to which the corrective allocation
relates. However, the normal rules of § 404, regarding deductions, apply.
(c) Corrective allocations should come only from employer nonelective
contributions (including forfeitures if the plan permits their use to reduce employer
contributions). For purpose of correcting a failed ADP, actual contribution percentage
(“ACP”), or multiple use test, any amounts used to fund qualified nonelective
contributions (“QNECs”) must satisfy the definition of QNEC in §1.401(k)-6.
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(d) In the case of a defined benefit plan, a corrective distribution for an individual
should be increased to take into account the delayed payment, in accordance with the
plan’s provisions for actuarial equivalence (after considering the applicable
requirements of §§ 417(e)(3) and 415(b) or any other applicable provision) that were in
effect on the date that the distribution should have been made. A corrective
distribution is not subject to the requirements of § 417(e)(3) if it is made to make up for
missed payments with respect to a benefit that is not subject to the requirements of
§ 417(e)(3).
(e)(i) In the case of a single employer defined benefit plan, a payment of
benefits that fails to satisfy the requirements of § 436(b), (c), or (e) can be corrected by
the Plan Sponsor (including another person acting on behalf of the Plan Sponsor)
making a contribution to the plan equal to the following amount (with interest up to the
date of the contribution): (A) in the case of a failure to satisfy § 436(b) with respect to
an unpredictable contingent event benefit, the amount described in § 436(b)(2) with
respect to that benefit; (B) in the case of a failure to satisfy § 436(c) with respect to an
amendment, the amount described in § 436(c)(2) with respect to that amendment; and
(C) in the case of a failure to satisfy § 436(e), the amount described in § 436(e)(2) with
respect to that failure. See also section 6.06(3) for correction of an Overpayment
(including a payment of benefits that exceeds the limitations imposed by § 436(d) or
436(b), (c), or (e)).
(ii) A corrective distribution or a corrective amendment (where a correction is
accomplished through a plan amendment) is not subject to the requirements of § 436,
but, if the plan is subject to a restriction pursuant to § 436 at the time of the correction,
generally the Plan Sponsor must make a contribution to the plan at the time of the
correction in the following amount: (A) if a corrective distribution is made in a singlesum payment or other prohibited payment (as defined in § 436(d)(5)) at a time when
the plan is subject to a restriction pursuant to § 436(d), the Plan Sponsor must
generally contribute to the plan the amount of that corrective distribution (but only half
of the corrective distribution must be contributed if the payment is made at a time when
the plan is subject to a restriction pursuant to § 436(d)(3)); and (B) if a corrective
amendment is made at a time when the plan is subject to a restriction pursuant to
§ 436(c), the Plan Sponsor must generally contribute to the plan an amount equal to
the increase in the funding target of the plan (as defined in § 430) attributable to that
amendment. No contribution is required to be made under this paragraph (e)(ii) if the
corrective distribution is made in a form that is not a prohibited payment (for example, if
the correction is made by actuarially increasing future payments that are made in a
form that is not a prohibited payment).
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(iii) Any contribution made by the Plan Sponsor pursuant to this paragraph (e) is
treated in the same manner as a “section 436 contribution” (as defined in
§1.436-1(j)(7)). Thus, the contribution is treated as separate from a minimum required
contribution under § 430 and is disregarded in determining the amount added to a
prefunding balance under § 430(f)(6). See §1.436-1(f)(2) generally for rules relating to
§ 436 contributions.
(f) In the case of a defined contribution plan, a corrective contribution or
distribution should be adjusted for Earnings from the date of the failure (determined
without regard to any Code provision which permits a corrective contribution or
distribution to be made at a later date).
(5) Special exceptions to full correction. In general, a failure must be fully
corrected. Although the mere fact that correction is inconvenient or burdensome is not
enough to relieve a Plan Sponsor of the need to make full correction, full correction
may not be required in certain situations if it is unreasonable or not feasible. Even in
these situations, the correction method adopted must be one that does not have
significant adverse effects on participants and beneficiaries or the plan, and that does
not discriminate significantly in favor of highly compensated employees. The
exceptions described below specify those situations in which full correction is not
required.
(a) Reasonable estimates. If either (i) it is possible to make a precise
calculation but the probable difference between the approximate and the precise
restoration of a participant's benefits is insignificant and the administrative cost of
determining precise restoration would significantly exceed the probable difference or
(ii) it is not possible to make a precise calculation (for example, where it is impossible
to provide plan data), reasonable estimates may be used in calculating appropriate
correction. If it is not feasible to make a reasonable estimate of what the actual
investment results would have been, a reasonable interest rate may be used. For this
purpose, the interest rate used by the Department of Labor’s VFCP Online Calculator
is deemed to be a reasonable interest rate. The calculator can be found at
https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-andcompliance/correction-programs/vfcp.
(b) Delivery of small benefits. If the total corrective distribution due a participant
or beneficiary is $75 or less, the Plan Sponsor is not required to make the corrective
distribution if the reasonable direct costs of processing and delivering the distribution to
the participant or beneficiary would exceed the amount of the distribution. This section
6.02(5)(b) does not apply to corrective contributions. Corrective contributions are
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required to be made with respect to a current or former participant, without regard to
the amount of the corrective contributions.
(c) Recovery of small Overpayments. Generally, if the total amount of an
Overpayment to an Overpayment recipient is $250 or less, the Plan Sponsor is not
required to seek the return of the Overpayment from the Overpayment recipient. Also,
the Plan Sponsor is not required to notify the Overpayment recipient that an
Overpayment of $250 or less is ineligible for favorable tax treatment accorded to
distributions from the plan (and, specifically, is ineligible for tax-free rollover).
(d) Locating lost participants. (i) Reasonable actions must be taken to find all
current and former participants and beneficiaries to whom additional benefits are due,
but who have not been located after a mailing to the last known address. In general,
such actions include, but are not limited to, a mailing to the individual’s last known
address using certified mail, and, if that is unsuccessful, an additional search method,
such as the use of a commercial locator service, a credit reporting agency, or internet
search tools. Depending on the facts and circumstances, the use of more than one of
these additional search methods may be appropriate. A Plan Sponsor will not be
considered to have failed to correct a failure due to the inability to locate an individual if
reasonable actions to locate the individual have been undertaken in accordance with
this paragraph; provided that, if the individual is later located, the additional benefits
are provided to the individual at that time.
(ii) The IRS Letter Forwarding Program was modified to provide that the IRS
would no longer forward letters from individuals, companies or organizations that
control assets that may be due taxpayers. See Rev. Proc. 2012-35, 2012-37
I.R.B. 341. Therefore, the IRS Letter Forwarding Program is not available as a means
to search for participants and beneficiaries to whom benefits under the plan are due.
(e) Small Excess Amounts. Generally, if the total amount of an Excess Amount
with respect to the benefit of a participant or beneficiary is $250 or less, the Plan
Sponsor is not required to distribute or forfeit such Excess Amount. However, if the
Excess Amount exceeds a statutory limit, the participant or beneficiary must be notified
that the Excess Amount, including any investment gains, is not eligible for favorable tax
treatment accorded to distributions from the plan (and, specifically, is not eligible for
tax-free rollover). See section 6.06(1) for such notice requirements.
(f) Orphan Plans. The IRS retains the discretion to determine under VCP and
Audit CAP whether full correction will be required with respect to a terminating Orphan
Plan.
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(6) Correction principle for plan loan failures. In the case of a plan loan failure
corrected in accordance with section 6.07(3)(b), (c), or (d), the participant is generally
responsible for paying the corrective payment. However, with respect to the failure
listed in section 6.07(3)(d), the employer should pay a portion of the correction
payment on behalf of the participant equal to the interest that accumulates as a result
of such failure, generally determined at a rate equal to the greater of the plan loan
interest rate or the rate of return under the plan.
(7) Correction for exclusion of employees with respect to elective deferrals or
after-tax employee contributions. If a Qualified Plan or § 403(b) Plan has an
Operational Failure that consists of excluding an employee that should have been
eligible to make an elective deferral or an after-tax employee contribution, the employer
should contribute to the plan on behalf of the excluded employee an amount that
makes up for the value of the lost opportunity for the employee to have a portion of his
or her compensation contributed to the plan accumulated with earnings tax deferred in
the future. This correction principle applies solely to this limited circumstance. It does
not, for example, extend to the correction of a failure to satisfy a nondiscrimination test,
such as, the ADP test pursuant to § 401(k)(3) and the ACP test pursuant to
§ 401(m)(2). Specific methods and examples to correct this failure are provided in
Appendix A, section .05, and Appendix B, section 2.02. Similarly, the methods and
examples provided for correcting this failure do not extend to other failures. Thus, the
correction methods and the examples in Appendix A, section .05 and Appendix B,
section 2.02, cannot, for example, be used to correct ADP/ACP failures.
(8) Correction by plan amendment in VCP, Audit CAP, and SCP. For the
availability of correction by plan amendment, see section 4.05.
(9) Reporting. Any corrective distributions from the plan should be properly
reported.
.03 Correction of an Employer Eligibility Failure. (1) The permitted correction of
an Employer Eligibility Failure is the cessation of all contributions (including elective
deferrals and after-tax employee contributions). For VCP submissions, the cessation
must occur no later than the date the submission under VCP is filed. The assets in
such a plan are to remain in the trust, annuity contract, or custodial account and are to
be distributed no earlier than the occurrence of one of the applicable distribution
events, for example, for § 403(b) Plans, an event described in § 403(b)(7) (to the
extent the assets are held in custodial accounts) or § 403(b)(11) (for those assets
invested in annuity contracts that would be subject to § 403(b)(11) restrictions if the
employer were eligible).
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(2) Cessation of contributions is not required if continuation of contributions
would not be an Employer Eligibility Failure (for example, with respect to a tax-exempt
employer that may maintain a § 401(k) plan after 1996). In the case of a § 403(b)
Failure that is an Employer Eligibility Failure, correction may include treating
contributions as not being excluded under § 403(b) (and thus the contributions would
be treated as having been contributed, for example, to an annuity contract to which
§ 403(c) applies).
(3) A plan that is corrected through VCP or Audit CAP is treated as subject to all
of the requirements and provisions of §§ 401(a) for a Qualified Plan, 403(b) for a
§ 403(b) Plan, 408(k) for a SEP, and 408(p) for a SIMPLE IRA Plan (including Code
provisions relating to rollovers). Therefore, the Plan Sponsor must also correct all
other failures in accordance with this revenue procedure.
(4) If correction is accomplished under VCP or Audit CAP in accordance with the
requirements of this section 6.03, then any rollovers made from the plan pursuant to a
distributable event are deemed to have been made from an eligible retirement plan (as
defined in § 402(c)(8)(B)) for the purpose of determining whether the amounts qualify
as an eligible rollover distribution under § 402(c) or 403(b)(8) (including the
determination of excess contributions that are subject to the § 4973 excise tax).
.04 Correction of a failure to obtain spousal consent. (1) In general. Failures to
obtain spousal consent described in this section 6.04 may be corrected under VCP,
SCP, or Audit CAP. Normally, the correction method for a failure to obtain spousal
consent for a distribution that is subject to the spousal consent rules under
§§ 401(a)(11) and 417 is similar to the correction method described in Appendix A,
section .07. The Plan Sponsor must notify the affected participant and spouse (the
spouse to whom the participant was married at the time of the distribution), so that the
spouse can provide spousal consent to the distribution actually made or the participant
may repay the distribution and receive a qualified joint and survivor annuity.
(2) Alternative correction methods when spousal consent is not obtained. (a) In
general. As alternatives to the correction method in section 6.04(1), correction for a
failure to obtain spousal consent may be made under either section 6.04(2)(b) or
section 6.04(2)(c).
(b) QJSA option. In the event that spousal consent to the prior distribution is not
obtained (for example, because the spouse chooses not to consent, the spouse does
not respond to the notice, or the spouse cannot be located), the spouse is entitled to a
benefit under the plan equal to the portion of the qualified joint and survivor annuity that
would have been payable to the spouse upon the death of the participant had a
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qualified joint and survivor annuity been provided to the participant under the plan at
the annuity starting date for the prior distribution. Such spousal benefit must be
provided if a claim is made by the spouse.
(c) Election between annuity and single-sum payment. In the event that spousal
consent to the prior distribution is not obtained, the plan may offer the spouse the
choice between (i) the survivor annuity benefit described in section 6.04(2)(b) or (ii) a
single-sum payment equal to the actuarial present value of that survivor annuity benefit
(calculated using the applicable interest rate and mortality table under § 417(e)(3)).
Any such single-sum payment is treated in the same manner as a distribution under
§ 402(c)(9) for purposes of rolling over the payment to an IRA or other eligible
retirement plan. In the event that the plan is subject to a restriction on the payment of
single sums pursuant to § 436(d) at the time the plan offers this choice to the spouse
and the spouse elects to receive a single-sum payment, the Plan Sponsor must
contribute to the plan the applicable amount under section 6.02(4)(e)(ii)(A).
.05 Determination letter application not permitted. (1) In general. A
determination letter application may not be submitted with a VCP submission.
(a) Issuance of compliance statement or closing agreement for Plan Document
Failures corrected through plan amendment under VCP or Audit CAP. The issuance of
a compliance statement or closing agreement for Plan Document Failures corrected
through plan amendment under VCP or Audit CAP does not constitute a determination
that the terms of the plan, including the corrective plan amendment, satisfy the
qualification requirements in form. See section 10.08(2)(a) and (b).
(b) Issuance of compliance statement or closing agreement for Operational
Failures corrected through plan amendment under VCP or Audit CAP. If a Plan
Sponsor submits a VCP filing correcting an Operational Failure through a plan
amendment or corrects such a failure under Audit CAP, and the plan amendment is
accepted as a proper correction, then the compliance statement under VCP or closing
agreement issued under Audit CAP constitutes a determination that the Operational
Failure has been corrected, but is not a determination that the terms of the plan,
including the corrective plan amendment, satisfy the qualification requirements in form.
See section 10.08(2)(c).
(2) Corrective amendments to Pre-approved Plans. (a) Effect of corrective
amendment. Generally, under VCP or Audit CAP, a Plan Sponsor that is an adopter of
a Pre-approved Plan or a § 403(b) Pre-approved Plan may amend its plan to correct a
Qualification Failure or a § 403(b) Failure (provided the requirements of EPCRS are
satisfied and the amendment satisfies the requirements of the Code). In some cases,
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the corrective amendment is not provided for among plan provision options that were
pre-approved when the opinion or advisory letter was issued with respect to the plan.
As a result, adopting such a corrective amendment would cause the Plan Sponsor to
lose reliance on the plan’s opinion or advisory letter, except in the limited
circumstances provided in section 6.05(2)(b).
(b) Exception for certain amendments. In the case of a Pre-approved Plan or a
§ 403(b) Pre-approved Plan, the adoption of a plan provision required to correct a
failure under VCP or Audit CAP that is not provided for in the adoption agreement will
not cause the Plan Sponsor to lose its reliance on the plan’s opinion or advisory letter,
provided that: (i) the corrective amendment would otherwise be permitted under the
rules for Pre-approved Plans or § 403(b) Pre-approved Plans, as applicable, and (ii) no
other modification has been made to the plan that would cause the plan to lose its
reliance on the opinion or advisory letter. If these conditions are satisfied, the Plan
Sponsor will be allowed to continue to rely on the plan’s opinion or advisory letter. In
addition, the adoption of the corrective amendment will not cause the Pre-approved
Plan to lose its eligibility to remain within the six-year remedial amendment cycle
provided for in Rev. Proc. 2016-37, as modified, on a continuing basis until the
expiration of the next six-year remedial amendment cycle described in section 16.01 of
Rev. Proc. 2016-37, as modified.
.06 Special rules relating to Excess Amounts. (1) Treatment of Excess
Amounts. A distribution of an Excess Amount is not eligible for the favorable tax
treatment accorded to distributions from Qualified Plans or § 403(b) Plans (such as
eligibility for tax-free rollover). Thus, for example, if such a distribution was contributed
to an IRA, the contribution is not a valid rollover contribution for purposes of
determining the amount of excess contributions (within the meaning of § 4973) to the
individual's IRA. A distribution of an Excess Amount is generally treated in the manner
described in section 3 of Rev. Proc. 92-93, 1992-2 C.B. 505 (relating to the corrective
disbursement of elective deferrals). The distribution must be reported on Form
1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans,
IRAs, Insurance Contracts, etc., for the year of distribution with respect to each
participant or beneficiary receiving such a distribution. Except as otherwise provided in
section 6.02(5)(c) with respect to recovery of small Overpayments, where an Excess
Amount has been or is being distributed, the Plan Sponsor must notify the recipient
that (a) an Excess Amount has been or will be distributed and (b) an Excess Amount is
not eligible for favorable tax treatment accorded to distributions from an eligible
retirement plan, as defined in § 402(c)(8)(B) (and, specifically, is not eligible for
rollover).

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(2) Correction of Excess Allocations. In general, an Excess Allocation is
corrected in accordance with the Reduction of Account Balance Correction Method set
forth in this paragraph. Under this method, the account balance of an employee who
received an Excess Allocation is reduced by the Excess Allocation (adjusted for
Earnings). If the Excess Allocation would have been allocated to other employees in
the year of the failure had the failure not occurred, then that amount (adjusted for
Earnings) is reallocated to those employees in accordance with the plan's allocation
formula. If the improperly allocated amount would not have been allocated to other
employees absent the failure, that amount (adjusted for Earnings) is placed in a
separate account that is not allocated on behalf of any participant or beneficiary (an
unallocated account) established for the purpose of holding Excess Allocations,
adjusted for Earnings, to be used to reduce employer contributions (other than elective
deferrals) in the current year or succeeding year. While such amounts remain in the
unallocated account, the employer is not permitted to make contributions to the plan
other than elective deferrals. Excess Allocations that are attributable to elective
deferrals or after-tax employee contributions (adjusted for Earnings) must be
distributed to the participant. For qualification purposes, an Excess Allocation that is
corrected pursuant to this paragraph is disregarded for purposes of §§ 402(g) and 415,
the ADP test of § 401(k)(3), and the ACP test of § 401(m)(2). If an Excess Allocation
resulting from a violation of § 415 consists of annual additions attributable to both
employer contributions and elective deferrals or after-tax employee contributions, then
the correction of the Excess Allocation is completed by first distributing the unmatched
employee’s after-tax contributions (adjusted for Earnings) and then the unmatched
employee’s elective deferrals (adjusted for Earnings). If any excess remains, and is
attributable to either elective deferrals or after-tax employee contributions that are
matched, the excess is apportioned first to after-tax employee contributions with the
associated matching employer contributions and then to elective deferrals with the
associated matching employer contributions. Any matching contribution or nonelective
employer contribution (adjusted for Earnings) which constitutes an Excess Allocation is
then forfeited and placed in an unallocated account established for the purpose of
holding Excess Allocations to be used to reduce employer contributions in the current
year and succeeding year. Such unallocated account is adjusted for Earnings. While
such amounts remain in the unallocated account, the employer is not permitted to
make contributions (other than elective deferrals) to the plan.
(3) Correction of Overpayments (defined benefit plans). An Overpayment from
a defined benefit plan is corrected in accordance with the rules set forth in this section
6.06(3) and Appendix B, section 2.05.
(a) In general, subject to the conditions set forth in section 4.05 (which permits
correction by plan amendment under VCP, Audit CAP, and, under limited
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circumstances, SCP), a Plan Sponsor may correct an Overpayment by adopting a
retroactive amendment to conform to the plan’s operation.
(b) If the Overpayment is not corrected by plan amendment, the Plan Sponsor
may correct the Overpayment in accordance with the correction methods set forth in
section 6.06(3)(c) and (d) and Appendix B, section 2.05. In those cases, the following
rules apply:
(i) With regard to Overpayments involving periodic payments, future payments
must be reduced as soon as practicable either to reflect the correct amount payable to
the Overpayment recipient under the terms of the plan, or to satisfy a limitation
provided in the Code or regulations;
(ii) Except as provided in section 6.02(5)(c) with respect to the recovery of small
Overpayments, the Plan Sponsor must notify the Overpayment recipient in writing that
the Overpayment is not eligible for favorable tax treatment accorded to distributions
from an eligible retirement plan, as defined in § 402(c)(8)(B) (and, specifically, is not
eligible for tax-free rollover); and
(iii) Except as provided in section 6.02(5)(c) with respect to the recovery of small
Overpayments, and except as otherwise provided in this section 6.06(3) and Appendix
B, section 2.05, to the extent the amount of an Overpayment adjusted for Earnings at
the plan’s earnings rate is not repaid to the plan, the Plan Sponsor or another person
must contribute the difference to the plan.
(c) An Overpayment may be corrected in accordance with the return of
Overpayment correction method (including repayment through an installment
agreement) or the adjustment of future payments correction method, as described in
Appendix B, section 2.05(2). Plan Sponsors may permit an Overpayment recipient to
choose the method of repayment that will apply to the correction of the Overpayment.
(d) If the applicable requirements are satisfied, an Overpayment may be
corrected in accordance with the funding exception correction method described in
Appendix B, section 2.05(3), or the contribution credit correction method described in
Appendix B, section 2.05(4).
(i) In general, under the funding exception correction method, in the case of a
plan subject to § 436, no corrective payments are necessary with regard to an
Overpayment, provided that the certified or presumed AFTAP determined under § 436
that is applicable to the plan at the date of correction is equal to at least 100 percent
(or, in the case of a multiemployer plan, the plan’s most recent annual funding
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certification indicates that the plan is not in critical, critical and declining, or endangered
status, as defined in § 432, determined at the date of correction). As provided in
section 6.06(3)(b)(i), future benefit payments to an Overpayment recipient must be
reduced to the correct benefit payment amount. For purposes of EPCRS, no further
corrective payments from any party are required, no further reductions to future benefit
payments to an Overpayment recipient, or any spouse or beneficiary of an
Overpayment recipient, are permitted, and no further corrective payments from an
Overpayment recipient, or any spouse or beneficiary of an Overpayment recipient, are
permitted. See Appendix B, section 2.05(3), for additional details and eligibility
requirements regarding the funding exception correction method.
(ii) Under the contribution credit correction method, in general, the amount of
Overpayments required to be repaid to the plan is the amount of the Overpayments
reduced (but not below zero) by: (A) the cumulative increase in the plan’s minimum
funding requirements attributable to the Overpayments (including the increase
attributable to the overstatement of liabilities, whether funded through cash
contributions or through the use of a funding standard carryover balance, prefunding
balance, or funding standard account credit balance) beginning with (1) the plan year
for which the Overpayments are taken into account for funding purposes, through (2)
the end of the plan year preceding the plan year for which the corrected benefit
payment amount is taken into account for funding purposes; and (B) certain additional
contributions in excess of minimum funding requirements paid to the plan after the first
of the Overpayments was made. This reduction is referred to as a “contribution credit.”
As provided in section 6.06(3)(b)(i), future benefit payments to an Overpayment
recipient must be reduced to the correct benefit payment amount. For purposes of
EPCRS, if the amount of the Overpayments is reduced to zero after the contribution
credit is applied, no further corrective payments from any party are required, no further
reductions to future benefit payments to an Overpayment recipient, or any spouse or
beneficiary of an Overpayment recipient, are permitted, and no further corrective
payments from an Overpayment recipient, or any spouse or beneficiary of an
Overpayment recipient, are permitted. However, if a net Overpayment remains after
the application of the contribution credit, the Plan Sponsor or another party must take
further action to reimburse the plan for the remainder of the Overpayment. See
Appendix B, section 2.05(4), for additional details and eligibility requirements regarding
the contribution credit correction method.
(e) Depending on the nature of the Overpayment, other appropriate correction
methods may be used. An appropriate correction method may include using rules
similar to the correction methods described in Appendix B, section 2.05, but having the
Plan Sponsor or another person contribute the amount of the Overpayment (with
appropriate interest) to the plan instead of seeking recoupment from an Overpayment
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recipient. Any other correction method used must satisfy the correction principles of
section 6.02 and any other applicable rules in this revenue procedure.
(4) Correction of Overpayments (defined contribution plans and § 403(b) Plans).
An Overpayment from a defined contribution plan or § 403(b) Plan is corrected in
accordance with the rules set forth in this section 6.06(4) and Appendix B, section 2.04.
(a) Correction by plan amendment. In general, subject to the conditions set
forth in section 4.05 (which permits correction by plan amendment under VCP, Audit
CAP, and, under limited circumstances, SCP), a Plan Sponsor may correct an
Overpayment by amending the plan to conform to the plan’s operation.
(b) Rules relating to Overpayment correction methods. If the Overpayment is
not corrected by plan amendment, the Plan Sponsor may correct the Overpayment in
accordance with the correction methods set forth in sections 6.06(4)(c), (d), and (e),
and Appendix B, section 2.04. In those cases, the following rules apply:
(i) With regard to Overpayments involving periodic payments, future payments
must be reduced as soon as practicable either to reflect the correct amount payable to
the Overpayment recipient under the terms of the plan, or to satisfy a limitation
provided in the Code or regulations;
(ii) Except as provided in section 6.02(5)(c) with respect to the recovery of small
Overpayments, the Plan Sponsor must notify the Overpayment recipient in writing that
the Overpayment was not eligible for favorable tax treatment accorded to distributions
from an eligible retirement plan, as defined in § 402(c)(8)(B), (and, specifically, was not
eligible for tax-free rollover); and
(iii) Except as provided in section 6.02(5)(c) with respect to the recovery of small
Overpayments, to the extent the amount of an Overpayment adjusted for Earnings at
the plan’s earnings rate from the date of distribution to the date of the correction is not
repaid to the plan, the Plan Sponsor or another person must contribute the difference
to the plan. The preceding sentence does not apply when the failure arose solely
because a payment was made from the plan to an Overpayment recipient in the
absence of a distributable event (but was otherwise determined in accordance with the
terms of the plan (for example, an impermissible in-service distribution)).
(c) Return of Overpayment correction method. An Overpayment may be
corrected in accordance with the return of Overpayment correction method (including
repayment through an installment agreement). Under this method, the employer takes
reasonable steps to have the Overpayment repaid to the plan by the Overpayment
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recipient, adjusted for Earnings at the plan’s earnings rate from the date of the
distribution to the date of the correction of the Overpayment. Plan Sponsors may
permit an Overpayment recipient to choose the method of repayment that will apply to
the correction of the Overpayment.
(d) Unallocated account. Except as provided in section 6.06(4)(e), a corrected
Overpayment, adjusted for Earnings at the plan's earnings rate to the date of the
repayment, is to be placed in an unallocated account, as described in section 6.06(2),
to be used to reduce employer contributions (other than elective deferrals) in the
current year and succeeding year(s) (or, if the amount would have been allocated to
other eligible employees who were in the plan for the year of the failure if the failure
had not occurred, then that amount is reallocated to the other eligible employees in
accordance with the plan's allocation formula).
(e) Repayment by the Overpayment recipient. To the extent an Overpayment
results solely from a distribution of an Overpayment recipient’s benefit under the plan in
the absence of a distributable event but the Overpayment was otherwise determined in
accordance with the terms of the plan, any amount returned to the plan by the
Overpayment recipient is to be allocated to his or her account.
(f) Other appropriate correction methods. Depending on the nature of the
Overpayment, other appropriate correction methods may be used. An appropriate
correction method may include using rules similar to the correction method in section
6.06(4)(b) but having the employer or another person contribute the amount of the
Overpayment (with appropriate interest) to the plan instead of seeking recoupment
from an Overpayment recipient. Any other correction method used must satisfy the
correction principles of section 6.02 and any other applicable rules of this revenue
procedure.
.07 Correction of plan loan failures. (1) In general. Plan loan failures may be
corrected under VCP, SCP, or Audit CAP, unless otherwise specified in this section
6.07.
(2) Plan loan failures treated as deemed distributions under § 72(p). Unless
correction is made in accordance with section 6.07(3) (to the extent applicable), a
deemed distribution under § 72(p)(1) in connection with a failure relating to a plan loan
to a participant must be reported on Form 1099-R, Distributions From Pensions,
Annuities, Retirement or Profit-Sharing Plans, IR

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3Ac2c99c16edaf49cb. Public record. Not legal advice.