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Internal Revenue Bulletin › IRB 2019 › Revenue Procedure › Rev. Proc. 2019-19

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Rev. Proc. 2019-19

TABLE OF CONTENTS

PART I. INTRODUCTION TO EMPLOYEE PLANS COMPLIANCE RESOLUTION

SYSTEM

SECTION 1. PURPOSE AND OVERVIEW

.01 Purpose ............................................................................................

.02 General principles underlying EPCRS .............................................

.03 Overview ..........................................................................................

SECTION 2. EFFECT OF THIS REVENUE PROCEDURE ON PROGRAMS

.01 Effect on programs ...........................................................................

.02 Modifications relating to VCP submission procedures ……………... p.

.03 Description of other modifications ………………………………...… p.

.04 Future enhancements ..……………………………………………...… p.

PART II. PROGRAM EFFECT AND ELIGIBILITY

SECTION 3. EFFECT OF EPCRS; RELIANCE

.01 Effect of EPCRS on retirement plans ……………............................

.02 Compliance statement .....................................................................

.03 Excise and other taxes ….................................................................

.04 Reliance ...........................................................................................

SECTION 4. PROGRAM ELIGIBILITY

.01 EPCRS Programs …………………………………………………......

.02 Effect of examination ......................................................................

.03 SCP eligibility requirements relating to plan documents ................

.04 Established practices and procedures ...........................................

.05 Correction by plan amendment ......................................................

.06 Availability of correction for Employer Eligibility Failures and

Demographic Failures ...................................................................... p.

.07 Availability of correction for a terminated plan ……..……….......….

es ...........................................

.05 Correction by plan amendment ......................................................

.06 Availability of correction for Employer Eligibility Failures and

Demographic Failures ...................................................................... p.

.07 Availability of correction for a terminated plan ……..……….......….

.08 Availability of correction for an Orphan Plan …..….……..…….….…

.09 Availability of correction for § 457(b) plans …..………………….…...

.10 Egregious failures ……………………………………………………. ..

.11 Diversion or misuse of plan assets …........................................... p.

.12 Abusive tax avoidance transactions ……………..……..…………..

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PART III. DEFINITIONS, CORRECTION PRINCIPLES, AND RULES OF GENERAL

APPLICABILITY

SECTION 5. DEFINITIONS

.01 Definitions for Qualified Plans ........................................................

.02 Definitions for 403(b) Plans ............................................................

.03 Definitions for Orphan Plans ...…………………………………….....

.04 Earnings ……………………………………………………….…..…...

.05 IRA ………………………………………………………………..…….

.06 SEP ………………………………………………………….……….…

.07 SIMPLE IRA Plan ………………………………………….………….

.08 Under Examination .........................................................................

SECTION 6. CORRECTION PRINCIPLES AND RULES OF GENERAL

APPLICABILITY

.01 Correction principles; rules of general applicability ........................

.02 Correction principles ......................................................................

.03 Correction of an Employer Eligibility Failure ..................................

.04 Correction of a failure to obtain spousal consent …………….…...

.05 Determination letter application not permitted ………..……….......

.06 Special rules relating to Excess Amounts .....................................

.....................................................................

.03 Correction of an Employer Eligibility Failure ..................................

.04 Correction of a failure to obtain spousal consent …………….…...

.05 Determination letter application not permitted ………..……….......

.06 Special rules relating to Excess Amounts .....................................

.07 Rules relating to reporting plan loan failures ……………..………..

.08 Correction under statute or regulations .........................................

.09 Matters subject to excise or other taxes ........................................

.10 Correction for 403(b) Plans ...........................................................

.11 Correction for SEPs and SIMPLE IRA Plans .................................

.12 Confidentiality and disclosure .........................................................

.13 No effect on other law .....................................................................

PART IV. SELF-CORRECTION (SCP)

SECTION 7. AVAILABILITY OF SCP FOR CERTAIN OPERATIONAL FAILURES AND

PLAN DOCUMENT FAILURES

.01 In general ……………………………………………………………..

.02 Operational Failures …………………………………………………..

.03 Plan Document Failures ……………………………………………...

SECTION 8. SELF-CORRECTION OF INSIGNIFICANT OPERATIONAL FAILURES

.01 Requirements .................................................................................

.02 Factors ..........................................................................................

.03 Multiple failures .............................................................................

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.04 Examples ......................................................................................

SECTION 9

.......................................

.02 Factors ..........................................................................................

.03 Multiple failures .............................................................................

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.04 Examples ......................................................................................

SECTION 9. SELF-CORRECTION OF CERTAIN SIGNIFICANT OPERATIONAL

FAILURES AND PLAN DOCUMENT FAILURES

.01 Requirements .................................................................................

.02 Correction period ............................................................................

.03.Substantial completion of correction ……………………..................

.04 Examples ........................................................................................

PART V. VOLUNTARY CORRECTION PROGRAM WITH IRS APPROVAL (VCP)

SECTION 10. VCP PROCEDURES

.01 VCP requirements ........................................................................

.02 Identification of failures .................................................................

.03 Effect of VCP submission on examination ....................................

.04 No concurrent examination activity ...............................................

.05 Determination letter applications not related to a VCP

submission ……………………………………………………….…….

.06 Processing of submission ...............................................................

.07 Compliance statement ....................................................................

.08 Effect of compliance statement on examination …….………...........

.09 Special rules relating to Anonymous Submissions …......………….

.10 Special rules relating to Group Submissions ...................................

.11 Multiemployer and multiple employer plans .....................................

SECTION 11

.........................................................

.08 Effect of compliance statement on examination …….………...........

.09 Special rules relating to Anonymous Submissions …......………….

.10 Special rules relating to Group Submissions ...................................

.11 Multiemployer and multiple employer plans .....................................

SECTION 11. SUBMISSION PROCEDURES FOR VCP

.01 General rules ...................................................................................

.02 Submission of model forms .……………………………..….…...…..

.03 Mandatory submission process using the www.pay.gov website ........ p.

.04 PDF file submission contents ……………………………………..….

.05 User fee due at the time of VCP submission using the www.pay.gov

website.………………………………………………..……….………

.06 Additional amount due for Group Submissions ...............................

.07 Additional amounts due for certain submissions. ........................... ...... p.

.08 Power of attorney requirements …………………..................... ...

.09 Acknowledgement of filing ……………………………………..……….

.10 Maintenance of copies of submission …………………….……..…….. p.

.11 Assembling the submission ................................................................. p.

SECTION 12. VCP USER FEES

.01 User fees ..........................................................................................

PART VI. CORRECTION ON AUDIT (AUDIT CAP)

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SECTION 13. DESCRIPTION OF AUDIT CAP

.01 Audit CAP requirements ...................................................................

.02 Payment of sanction .........................................................................

.03 Additional requirements ....................................................................

.04 Failure to reach resolution ................................................................

P requirements ...................................................................

.02 Payment of sanction .........................................................................

.03 Additional requirements ....................................................................

.04 Failure to reach resolution ................................................................

.05 Effect of closing agreement ..............................................................

.06 Other procedural rules ......................................................................

SECTION 14. AUDIT CAP SANCTION

.01 Determination of sanction .................................................................

.02 Factors considered ...........................................................................

.03 Transferred Assets ............................................................................ p.

.04 Sanction for Nonamender Failures discovered during the

determination letter application process ………………………..……… p.

PART VII. EFFECT ON OTHER DOCUMENTS; EFFECTIVE DATE; PAPERWORK

REDUCTION ACT

SECTION 15. EFFECT ON OTHER DOCUMENTS ……………………………… p.

SECTION 16. EFFECTIVE DATE ....................................................................... p.

SECTION 17. PUBLIC COMMENTS ……………………………………………… p.

SECTION 18. PAPERWORK REDUCTION ACT ..............................................

DRAFTING INFORMATION

APPENDIX A: OPERATIONAL FAILURES AND CORRECTION METHODS

.01 General rule ......................................................................................

.02 Failure to properly provide the minimum top-heavy

benefit under § 416 to non-key employees ………......................

.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) …………………………................

..............................

.02 Failure to properly provide the minimum top-heavy

benefit under § 416 to non-key employees ………......................

.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) …………………………................

.04 Failure to distribute elective deferrals in excess of the § 402(g) limit (in

contravention of § 401(a)(30)) ………….............................................. p.

.05 Exclusion of an eligible employee from all contributions or accruals

under the plan for one or more plan years .......................................... p.

.06 Failure to timely pay the minimum distribution required under

§ 401(a)(9) ……………......................................................................... p.

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.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 ………………….................................................................

.08 Failure to satisfy the § 415 limits in a defined

contribution plan ………………………………………………………

.09 Orphan Plans; orphan contracts and other assets ……………….. p.

APPENDIX B: CORRECTION METHODS AND EXAMPLES; EARNINGS

ADJUSTMENT METHODS AND EXAMPLES

SECTION 1. PURPOSE, ASSUMPTIONS FOR EXAMPLES AND SECTION

REFERENCES

.01 Purpose ..........................................................................................

.02 Assumptions for Examples ..............................................................

.03 Designated Roth contributions .........................................................

.04 Section references ………………………………..….…………………

SECTION 2. CORRECTION METHODS AND EXAMPLES

.01 ADP/ACP Failures ...........................................................................

.02 Assumptions for Examples ..............................................................

.03 Designated Roth contributions .........................................................

.04 Section references ………………………………..….…………………

SECTION 2. CORRECTION METHODS AND EXAMPLES

.01 ADP/ACP Failures ...........................................................................

.02 Exclusion of Otherwise Eligible Employees ....................................

.03 Vesting Failures ……………………………………….………..….…..

.04 § 415 Failures ..................................................................................

.05 Correction of Other Overpayment Failures ..……….……..….….….

.06 § 401(a)(17) Failures ...…………………………………..…………....

.07 Correction by Amendment ……………………………………..…......

SECTION 3. EARNINGS ADJUSTMENT METHODS AND EXAMPLES

.01 Earnings Adjustment Methods ........................................................

.02 Examples .........................................................................................

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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 Self-

Correction Program ("SCP"), the Voluntary Correction Program ("VCP"), and the Audit

Closing Agreement Program ("Audit CAP").

.02 General principles underlying EPCRS

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 Self-

Correction 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.

• Sanctions for plan failures identified on audit should be reasonable in light of

the nature, extent, and severity of the violation.

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• 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

an incentive to correct promptly.

• Sanctions for plan failures identified on audit should be reasonable in light of

the nature, extent, and severity of the violation.

Page 7 of 125

• 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.

• 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

an 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.

Proc. 2018-52, 2018-42 I.R.B. 611, the most recent prior consolidated statement of the

correction programs under EPCRS. This update to Rev. Proc. 2018-52 is a limited

update and is published primarily to expand SCP eligibility to permit correction of certain

Plan Document Failures and certain plan loan failures, and also to provide an additional

method of correcting Operational Failures by plan amendment under SCP. See the

discussion of the expanded ability to correct under SCP in sections 2.02 and 2.03.

.02 Modifications relating to SCP. (1) In general. Practitioners have requested

expansion of the ability to use SCP to correct certain failures, stating that expansion of

SCP would increase compliance and reduce the costs and burdens associated with

plan compliance. In light of those comments, the Department of the Treasury (Treasury

Page 8 of 125

Department) and the IRS have concluded that an expansion of SCP will facilitate

compliance for plans, while reducing costs and burdens of compliance by allowing Plan

Sponsors to self-correct in certain additional circumstances. Beginning April 19, 2019,

Plan Sponsors that satisfy the eligibility requirements of SCP may use the procedures

under this revenue procedure to correct certain Operational Failures or Plan Document

Failures under SCP.

sion of SCP will facilitate

compliance for plans, while reducing costs and burdens of compliance by allowing Plan

Sponsors to self-correct in certain additional circumstances. Beginning April 19, 2019,

Plan Sponsors that satisfy the eligibility requirements of SCP may use the procedures

under this revenue procedure to correct certain Operational Failures or Plan Document

Failures under SCP.

(2) Correcting certain Plan Document Failures under SCP. Section

4.01 is revised to provide that SCP is available to correct certain Plan Document

Failures. Section 4.01(1)(b) provides that, if otherwise eligible to correct under SCP, a

sponsor of a Qualified Plan or 403(b) Plan may correct certain Plan Document Failures

under SCP, other than the initial failure to adopt a Qualified Plan or the failure to adopt a

written 403(b) plan document timely, as required under §1.403(b)-3(b)(3) and Notice

2009-3, 2002 I.R.B. 250. Plan Document Failures under SCP are always treated as

significant failures and must be corrected in accordance with section 9. Consistent with

treating Plan Document Failures as significant failures, section 4.03(1) provides that

certain Plan Document Failures may be corrected under SCP only if the Plan, as of the

date of correction, is subject to a Favorable Letter and the correction is made within the

SCP correction period. As under Rev. Proc. 2018-52, section 4.01(1)(c) provides that,

for SEPs and SIMPLE IRAs, SCP is available to correct only insignificant Operational

Failures. Section 4.01(1)(d) continues to provide that Demographic and Employer

Eligibility Failures are not available for correction under SCP. Numerous conforming

changes to the revenue procedure have been made to implement the expansion of SCP

to permit correction of certain Plan Document Failures.

at,

for SEPs and SIMPLE IRAs, SCP is available to correct only insignificant Operational

Failures. Section 4.01(1)(d) continues to provide that Demographic and Employer

Eligibility Failures are not available for correction under SCP. Numerous conforming

changes to the revenue procedure have been made to implement the expansion of SCP

to permit correction of certain Plan Document Failures.

(3) New rules for correcting by plan amendment under SCP. This revenue

procedure adds new rules for correcting Operational Failures by plan amendment under

SCP. Under Rev. Proc. 2018-52, a Plan Sponsor could correct an Operational Failure

by a plan amendment to conform the terms of the plan to the plan’s prior operations for

Operational Failures listed in section 2.07 of Appendix B. Under the new correction

rules in this revenue procedure, an Operational Failure may be corrected by plan

amendment under SCP if three conditions are satisfied: (a) the plan amendment would

result in an increase of a benefit, right, or feature, (b) the increase in the benefit, right, or

feature is available to all eligible employees, and (c) providing the increase in the

benefit, right or feature is permitted under the Code and satisfies the correction

principles of section 6.02. In addition to Operational Failures, section 4.05(2)(c) permits

certain Plan Document Failures to be corrected by plan amendment if the plan has a

Favorable Letter and satisfies section 9.

ght, or

feature is available to all eligible employees, and (c) providing the increase in the

benefit, right or feature is permitted under the Code and satisfies the correction

principles of section 6.02. In addition to Operational Failures, section 4.05(2)(c) permits

certain Plan Document Failures to be corrected by plan amendment if the plan has a

Favorable Letter and satisfies section 9.

(4) SCP is available to correct certain plan loan failures. (a) In general. The

revenue procedure permits certain plan loan failures to be corrected under SCP.

Section 6.07(1) provides that plan loan failures described in section 6.07 generally may

be corrected under VCP, Audit CAP, or SCP, unless otherwise specified. The revenue

Page 9 of 125

procedure also provides that errors relating to the failure to repay a plan loan according

to plan terms (a defaulted loan) may be corrected under SCP in accordance with

section 6.07(3)(d). The correction methods for a defaulted loan are the same as those

provided under Rev. Proc. 2018-52; namely, permitting correction by either a single-

sum repayment, re-amortization of the outstanding loan balance, or a combination of

the two. The Department of Labor’s Voluntary Fiduciary Correction Program (VFC

Program), at 71 FR 20262, provides for a no-action letter for a defaulted loan failure

corrected under VCP, provided the conditions of the VFC Program are met. Such no-

action letters are conditioned under section 7.3(b) of that program on the inclusion of a

VCP compliance statement, among other things. The Department of Labor has advised

the IRS that it will not issue a no-action letter under section 7.3(b) of its VFC Program

unless such failures are corrected under VCP.

ure

corrected under VCP, provided the conditions of the VFC Program are met. Such no-

action letters are conditioned under section 7.3(b) of that program on the inclusion of a

VCP compliance statement, among other things. The Department of Labor has advised

the IRS that it will not issue a no-action letter under section 7.3(b) of its VFC Program

unless such failures are corrected under VCP.

(b) Reporting of deemed distributions. Section 6.07(1) of Rev. Proc. 2018-52

provided that if correction of a plan loan failure is not made, a deemed distribution under

§ 72(p)(1) must be reported on Form 1099-R, Distributions From Pensions, Annuities,

Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., with respect to the

affected participant. Rev. Proc. 2018-52 permitted, as part of VCP and Audit CAP, a

Plan Sponsor to report the deemed distribution on Form 1099-R in the year of correction

(instead of the year of the failure), but only if the Plan Sponsor specifically requested

that relief. Section 6.07(2) of this revenue procedure eliminates the requirement that

the reporting relief must be requested in order to report the deemed distribution in the

year of correction.

related to: (a) plan loans that are made in excess of the loan limits under § 72(p)(2)(A),

or (b) plan terms that do not meet the requirements of § 72(p)(2)(B) or (C), may be

corrected only under VCP or Audit CAP.

(d) Failure to obtain spousal consent for a plan loan. Section 6.07(4) provides a

new correction method for failure to obtain spousal consent for a plan loan. Under the

new correction method, the Plan Sponsor must notify the affected participant and

spouse, so that the spouse can provide spousal consent. If spousal consent is not

obtained, section 6.07(4)(b) provides that the failure must be corrected using either VCP

or Audit CAP.

an loan. Section 6.07(4) provides a

new correction method for failure to obtain spousal consent for a plan loan. Under the

new correction method, the Plan Sponsor must notify the affected participant and

spouse, so that the spouse can provide spousal consent. If spousal consent is not

obtained, section 6.07(4)(b) provides that the failure must be corrected using either VCP

or Audit CAP.

(e) Expanding SCP to correct certain plan loan failures by plan amendment.

Section 6.07(5) provides that a Plan Sponsor may correct a failure resulting from

granting a number of plan loans that exceeds the number of loans permitted under a

plan by adopting a plan amendment in accordance with the correction by plan

amendment methods set forth in section 2.07(3) of Appendix B. New section 2.07(3) of

Appendix B adds a new correction method for plan loans when the number of plan

loans exceeds the number permitted under the plan, in addition to the current correction

Page 10 of 125

method relating to the failure of granting plan loans to a participant under a plan that

does not permit plan loans. Under section 2.07(3) of Appendix B, the Plan Sponsor

may correct by plan amendment if: (i) the amendment satisfies § 401(a), (ii) the plan as

amended would have satisfied the qualification requirements of § 401(a) (and the

requirements applicable to plan loans under § 72(p)) had the amendment been adopted

and effective when plan loans were first made available, and (iii) plan loans (including

plan loans in excess of the number permitted under the terms of the plan) were

available to either all participants, or solely to one or more participants who were

nonhighly compensated employees.

.03 Description of other modifications. The modifications to Rev. Proc. 2018-52

that are reflected in this revenue procedure include the following changes --

• Revising section 1.03 to reflect that SCP is available to correct certain

Plan Document Failures, and to make other modifications

r all participants, or solely to one or more participants who were

nonhighly compensated employees.

.03 Description of other modifications. The modifications to Rev. Proc. 2018-52

that are reflected in this revenue procedure include the following changes --

• Revising section 1.03 to reflect that SCP is available to correct certain

Plan Document Failures, and to make other modifications. For a

description of the expansion of SCP to correct certain Plan Document

Failures, see section 2.02(2).

• Revising section 4.01 to provide that SCP is also available to correct

certain Plan Document Failures and certain plan loan failures. For a

description of the expansion of SCP to correct certain Plan Document

Failures and certain plan loan failures, see section 2.02(2) and (4).

• Revising section 4.03(1) to provide that certain Plan Document Failures

may be corrected under SCP if, as of the date of the correction, the plan is

subject to a Favorable Letter and other applicable requirements are met.

• Revising section 4.04 to reflect that SCP is available to correct certain

Plan Document Failures and to make other modifications. For a

description of the expansion of SCP to correct certain Plan Document

Failures, see section 2.02(2).

• Revising section 4.05(2) to add a new method to correct by plan

amendment under SCP. For a description of the correction method, see

section 2.02(3).

• Revising sections 4.10(2) and 4.12 to reflect that SCP is available to

correct certain Plan Document Failures and to make other modifications.

For a description of the expansion of SCP to correct certain Plan

Document Failures, see section 2.02(2).

• Revising section 6.02(6) to reflect changes to the methods for correction

of plan loan failures. For a description of changes to the methods for

correction of plan loans, see section 2.02(4).

• Revising section 6.04 to provide that, in addition to VCP, failures to obtain

spousal consent may also be corrected under SCP or Audit CAP

rrect certain Plan

Document Failures, see section 2.02(2).

• Revising section 6.02(6) to reflect changes to the methods for correction

of plan loan failures. For a description of changes to the methods for

correction of plan loans, see section 2.02(4).

• Revising section 6.04 to provide that, in addition to VCP, failures to obtain

spousal consent may also be corrected under SCP or Audit CAP.

• Revising section 6.07 to reflect changes to methods for correction of plan

loan failures, including expanding SCP to correct certain plan loan failures,

permitting the reporting of deemed distributions in the year of correction

Page 11 of 125

without an advance request of relief, and adding new correction methods

for certain plan loan failures. For a description of changes to the

correction of plan loans failures, see section 2.02(4).

• Revising sections 7 and 9 to reflect changes to SCP. For a description of

the expansion of SCP, see section 2.02.

• Revising section 8 to reflect that additional examples illustrating whether

an Operational Failure is insignificant will be made available on the IRS

website.

• Revising section 2.07 of Appendix B to provide a new correction method

when the number of plan loans exceeds the number permitted under the

plan. For a description of the correction method, see section 2.02(4)(e)

and Appendix B, section 2.07(3).

.04 Future enhancements.

(1) In general. 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.

eral. 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.

(2) Recoupment of Overpayments. The Treasury Department and the IRS

requested comments in Rev. Proc. 2015-27, 2015-16 I.R.B. 914, on potential changes

relating to the recoupment of Overpayments. In addition, the Treasury Department and

the IRS received comments on permitting the correction of Overpayments under SCP,

and are currently developing guidance on these issues. As part of the process of

developing changes to modify the EPCRS rules on the correction of Overpayments, the

Treasury Department and the IRS are continuing to review those comments.

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 meet 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), as applicable, for

purposes of applying §§ 3121(a)(5) (FICA taxes) and 3306(b)(5) (FUTA taxes).

Page 12 of 125

.02 Compliance statement

, 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), as applicable, for

purposes of applying §§ 3121(a)(5) (FICA taxes) and 3306(b)(5) (FUTA taxes).

Page 12 of 125

.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 10.07.

.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.

er 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 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.

be corrected under SCP only with respect to insignificant Operational Failures.

(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

Page 13 of 125

Eligibility. VCP also provides general procedures for the correction of plan loan failures

(see section 6.07).

orrected 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

Page 13 of 125

Eligibility. VCP also provides general procedures for the correction of plan loan failures

(see section 6.07).

(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

.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 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 5305A-SEP,

Salary Reduction Simplified Employee Pension--Individual Retirement Accounts

Contribution Agreement, adopted by an employer in accordance with the instructions on

Page 14 of 125

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

eduction Simplified Employee Pension--Individual Retirement Accounts

Contribution Agreement, adopted by an employer in accordance with the instructions on

Page 14 of 125

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 top-heavy

and, if so, to ensure that the minimum contribution requirements of the top-heavy rules

are satisfied. A plan document alone does not constitute evidence of established

procedures

de 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 top-heavy

and, if so, to ensure that the minimum contribution requirements of the top-heavy 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 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

n 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.)

Page 15 of 125

.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 10.07(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.

n may be amended to provide for

qualified nonelective contributions. As explained further in sections 6.05 and 10.07(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 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.

(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:

(i) The plan amendment would result in an increase of a benefit, right or feature.

(ii) The increase in the benefit, right, or feature applies to all employees eligible

to participate in the plan.

(iii) Providing 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.

or feature applies to all employees eligible

to participate in the plan.

(iii) Providing 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

Page 16 of 125

listed in section 2.07 of Appendix B 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 section 2.07 of Appendix B.

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

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).

.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 www.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.

Page 17 of 125

.10 Egregious failures. (1) In general

l 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.

Page 17 of 125

.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. 2019–4, 2019–1 I.R.B. 146 (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.

9–1 I.R.B. 146 (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.

.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

Page 18 of 125

in the VCP submission, and may issue a compliance statement with respect to those

failures

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

Page 18 of 125

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.

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.

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

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.

Page 19 of 125

lan" 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.

Page 19 of 125

(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. 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 (or section 5.05(2) of Rev. Proc. 2007-44, 2007-28 I.R.B. 54), is not

considered a Plan Document Failure. 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) of the Code (see Rev. Proc. 2002-

29, 2002-1 C.B. 1176, as modified by Rev. Proc. 2003-10, 2003-1 C.B. 259), the

amendment 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

1(a)(9) of the Code (see Rev. Proc. 2002-

29, 2002-1 C.B. 1176, as modified by Rev. Proc. 2003-10, 2003-1 C.B. 259), the

amendment 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 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.

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. For an individually designed plan, a Nonamender Failure includes the

Page 20 of 125

failure to timely amend for provisions that appear on the Required Amendments List, as

described in Rev. Proc. 2016-37

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. For an individually designed plan, a Nonamender Failure includes the

Page 20 of 125

failure to timely amend for provisions that appear on the Required Amendments List, as

described in Rev. Proc. 2016-37. 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.

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

generally requires a corrective amendment to the plan adding more benefits or

increasing existing benefits (see §1.401(a)(4)-11(g)).

Failure.

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

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 meet 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 after-tax 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 contributi

excess aggregate

contribution under § 401(k) or (m); (v) an elective deferral or after-tax 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

Page 21 of 125

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).

unts.

(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).

a payment being made to a participant or beneficiary that exceeds the amount payable

to the participant or beneficiary 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 (either not made

from the participant's or beneficiary'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 and 403(b) 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.

.06(4) for defined contribution plans and 403(b) 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. 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, and the plan was amended to reflect the qualification

requirements that applied as of the date of termination.

Page 22 of 125

(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);

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

§ 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;

);

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

§ 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 “Pre-

approved 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

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 “Pre-

approved 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.

Page 23 of 125

.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) 403(b) Plan. The term "403(b) Plan" means a plan or program intended to

satisfy the requirements of § 403(b).

(2) 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 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

edial 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.

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)).

Page 24 of 125

ilure 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)).

Page 24 of 125

(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

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.

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 that exceeds the amount payable to

the participant or beneficiary under the terms of the plan or that exceeds a limitation

provided in the Code or regulations. Overpayments include payments made from the

participant’s or beneficiary’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

Page 25 of 125

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

Page 25 of 125

(b) any other tax that results from a 403(b) Failure that would apply but for

correction under this revenue procedure.

(7) Plan Sponsor. The term "Plan Sponsor” means the employer that offers a

403(b) Plan to its employees.

(8) 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

igible 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

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)).

Page 26 of 125

.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.

.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.

: (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 participation requirements of § 401(a)(26),

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

, 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

Page 27 of 125

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 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

e 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)

plicability. 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.

Page 28 of 125

(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

any failure

imilarly 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

any 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.

bution 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.

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.

(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

Page 29 of 125

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.

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)

.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 section .09(1) of Appendix A 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 VFC Program established by the

Department of Labor for a fiduciary violation for 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 VFC

Program under which correction of a defaulted participant loan that provides for

repayment in accordance with § 72(p)(2) requires only submission of the correction

Page 30 of 125

under VCP and inclusion of the VCP compliance statement (with proof of any required

corrective payment).)

t as correction under this

revenue procedure. (See also section 7.3(b) of the Department of Labor’s VFC

Program under which correction of a defaulted participant loan that provides for

repayment in accordance with § 72(p)(2) requires only submission of the correction

Page 30 of 125

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.

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.

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.

(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

Page 31 of 125

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).

ing 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

Page 31 of 125

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

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 single-

sum 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 corr

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 single-

sum 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).

(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.

onsor 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

Page 32 of 125

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

tween 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 Voluntary Fiduciary Correction Program Online

Calculator is deemed to be a reasonable interest rate. The calculator can be found on

the internet at http://www.dol.gov/ebsa/calculator.

(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

required to be made with respect to a participant with an account under the plan.

Overpayment to a participant or beneficiary is $100 or less, the Plan Sponsor is not

required to seek the return of the Overpayment from the participant or beneficiary. The

Plan Sponsor is not required to notify the participant or beneficiary that the

Overpayment is not eligible for favorable tax treatment accorded to distributions from

the plan (and, specifically, is not eligible for tax-free rollover).

o a participant or beneficiary is $100 or less, the Plan Sponsor is not

required to seek the return of the Overpayment from the participant or beneficiary. The

Plan Sponsor is not required to notify the participant or beneficiary that the

Overpayment is not eligible for favorable tax treatment accorded to distributions from

the plan (and, specifically, is not eligible 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,

Page 33 of 125

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.

S 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 $100 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.

(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.

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

Page 34 of 125

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.

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).

(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).

e (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

under § 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).

Page 35 of 125

.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

o 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

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.

led 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

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.

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

Page 36 of 125

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 10.07(2)(a) and (b).

ough plan amendment under VCP or Audit CAP. The issuance of

a compliance statement or closing agreement for Plan Document Failures corrected

Page 36 of 125

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 10.07(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 10.07(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,

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).

In some cases,

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 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.

.06 Special rules relating to Excess Amounts. (1) Treatment of Excess Amounts.

Except as otherwise provided in section 6.02(5)(c) with respect to recovery of small

Overpayments, 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

Page 37 of 125

eligibility for tax-free rollover)

.06 Special rules relating to Excess Amounts. (1) Treatment of Excess Amounts.

Except as otherwise provided in section 6.02(5)(c) with respect to recovery of small

Overpayments, 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

Page 37 of 125

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 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), 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 under

§ 402(c)(8)(B) (and, specifically, is not eligible for rollover).

(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

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)

ulting

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

Page 38 of 125

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 Overpayment (defined benefit plans). An Overpayment from a

defined benefit plan is corrected in accordance with rules similar to the Return of

Overpayment and Adjustment of Future Payments correction methods described in

section 2.04(1) of Appendix B or any other appropriate correction method. Depending

on the nature of the Overpayment, an appropriate correction method may include using

rules similar to the correction method described in section 2.04(1) of Appendix 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 a plan participant

or beneficiary

priate correction method. Depending

on the nature of the Overpayment, an appropriate correction method may include using

rules similar to the correction method described in section 2.04(1) of Appendix 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 a plan participant

or beneficiary. Another example of an appropriate correction method includes a Plan

Sponsor adopting a retroactive amendment to conform the plan document to the plan’s

operations (subject to the requirements of section 4.05). 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 Overpayment (defined contribution plans and 403(b) Plans). (a)

In general. An Overpayment from a defined contribution plan or 403(b) Plan is

corrected in accordance with the Return of Overpayment method set forth in this section

6.06(4). Under this method, the employer takes reasonable steps to have the

Overpayment repaid to the plan, adjusted for Earnings at the plan’s earnings rate from

the date of the distribution to the date of the correction of the Overpayment.

(b) Make-whole contribution. To the extent the amount of an Overpayment

adjusted for Earnings at the plan’s earnings rate is not repaid to the plan, the employer

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 a participant or beneficiary 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)).

e plan, the employer

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 a participant or beneficiary 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)).

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).

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(d) Repayment by the participant or beneficiary. To the extent an Overpayment

was solely considered a distribution in the absence of a distributable event but was

otherwise determined in accordance with the terms of the plan, any amount returned to

the plan by the participant or beneficiary is to be allocated to his or her account.

(e) Notification of employee. Except as provided in section 6.02(5)(c) with

respect to the recovery of small overpayments, the employer must notify the employee

that the Overpayment was not eligible for favorable tax treatment accorded to

distributions from an eligible retirement plan under § 402(c)(8)(B) (and, specifically, was

not eligible for tax-free rollover).

to his or her account.

(e) Notification of employee. Except as provided in section 6.02(5)(c) with

respect to the recovery of small overpayments, the employer must notify the employee

that the Overpayment was not eligible for favorable tax treatment accorded to

distributions from an eligible retirement plan under § 402(c)(8)(B) (and, specifically, was

not eligible for tax-free rollover).

(f) Other correction methods. Other appropriate correction methods may be used

to correct Overpayment failures from a defined contribution plan. Depending on the

nature of the Overpayment, an appropriate correction method may include using rules

similar to the correction method in section 6.06(4)(a) but having the employer or another

person contribute the amount of the Overpayment (with appropriate interest) to the plan

instead of seeking recoupment from a plan participant or beneficiary. Another example

of an appropriate correction method includes a Plan Sponsor adopting a retroactive

amendment to conform the plan document to the plan’s operations (subject to the

requirements of section 4.05). 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.

to the plan’s operations (subject to the

requirements of section 4.05). 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 with respect to the affected

participant, and any applicable income tax withholding amount that was required to be

paid in connection with the failure (see §1.72(p)-1, Q&A-15) must be paid by the

employer. In this case, the deemed distribution may be reported on Form 1099-R with

respect to the affected participant for the year of correction (instead of the year of the

failure).

(3) Correction methods for certain § 72(p) plan loan failures. (a) In general. The

correction methods set forth in section 6.07(3)(b), (c), and (d) apply to plan loans that do

not comply with one or more requirements of § 72(p)(2); however, these correction

methods are not available if the maximum period for repayment of the loan pursuant to

§ 72(p)(2)(B) has expired. Further, the IRS reserves the right to limit the use of these

correction methods to situations that it considers appropriate, for example, if the loan

Page 40 of 125

failure is caused by employer action

ply with one or more requirements of § 72(p)(2); however, these correction

methods are not available if the maximum period for repayment of the loan pursuant to

§ 72(p)(2)(B) has expired. Further, the IRS reserves the right to limit the use of these

correction methods to situations that it considers appropriate, for example, if the loan

Page 40 of 125

failure is caused by employer action. A deemed distribution corrected under section

6.07(3)(b), (c), or (d) is not required to be reported on Form 1099-R, and corrective

payments under section 6.07(3) do not result in the affected participant having

additional basis in the plan for purposes of determining the tax treatment of subsequent

distributions from the plan to the affected participant.

(b) Loans in excess of § 72(p)(2)(A). A failure of plan loan terms to satisfy

§ 72(p)(2)(A) may be corrected only under VCP or Audit CAP. The failure may be

corrected by a corrective payment to the plan based on the excess of the loan amount

over the maximum loan amount under § 72(p)(2)(A). In the event that loan repayments

were made in accordance with the amortization schedule for the loan before correction,

such prior repayments may be applied (i) solely to reduce the portion of the loan that did

not exceed the maximum loan amount under § 72(p)(2)(A) (so that the corrective

payment would equal the original loan excess plus interest thereon), (ii) to reduce the

loan excess to the extent of the interest thereon, with the remainder of the repayments

applied to reduce the portion of the loan that did not exceed the maximum loan amount

under § 72(p)(2)(A) (so that the corrective payment would equal the original loan

excess), or (iii) pro rata against the loan excess and the maximum loan amount under

§ 72(p)(2)(A) (so that the corrective payment would equal the outstanding balance

remaining on the original loan excess on the date that the corrective payment is made)

tion of the loan that did not exceed the maximum loan amount

under § 72(p)(2)(A) (so that the corrective payment would equal the original loan

excess), or (iii) pro rata against the loan excess and the maximum loan amount under

§ 72(p)(2)(A) (so that the corrective payment would equal the outstanding balance

remaining on the original loan excess on the date that the corrective payment is made).

After the corrective payment is made, the loan may be reformed to amortize the

remaining principal balance as of the date of the corrective payment over the remaining

period of the original loan. This is permissible as long as the recalculated repayments

over the remaining loan period would not cause the loan to violate the maximum

repayment term requirement under § 72(p)(2)(B). The maximum repayment term is

determined from the date the original loan was made. In addition, the amortized

repayments determined for the remaining loan period must comply with the level

amortization requirement of § 72(p)(2)(C).

terms to satisfy the maximum repayment term requirement of § 72(p)(2)(B) or the level

amortization requirement of § 72(p)(2)(C) may be corrected only under VCP or Audit

CAP. The failure may be corrected by a reamortization of the loan balance in

accordance with § 72(p)(2)(C) over the remainder of the maximum period that complies

with § 72(p)(2)(B), as measured from the original date of the loan.

to satisfy the maximum repayment term requirement of § 72(p)(2)(B) or the level

amortization requirement of § 72(p)(2)(C) may be corrected only under VCP or Audit

CAP. The failure may be corrected by a reamortization of the loan balance in

accordance with § 72(p)(2)(C) over the remainder of the maximum period that complies

with § 72(p)(2)(B), as measured from the original date of the loan.

(d) Defaulted loans. A failure to repay a loan in accordance with loan terms that

satisfy § 72(p)(2) may be corrected by (i) a single-sum corrective payment equal to the

amount that the affected participant would have paid to the plan if there had been no

failure to repay the plan, plus interest accrued on the missed payments, (ii) reamortizing

the outstanding balance of the loan, including accrued interest, over the remaining

payment schedule of the original term of the loan or the period remaining had the loan

Page 41 of 125

been amortized over the maximum period that complies with § 72(p)(2)(B), as

measured from the original date of the loan, or (iii) any combination of (i) or (ii).

(e) No requirement for plan provisions. This section 6.07 applies even if the plan

does not require loans to satisfy the requirements of § 72(p)(2). However, under the

Department of Labor’s VFC Program, to correct the ERISA fiduciary violations

associated with the failures described in section 6.07(3)(b), (c), and (d), the plan must

include plan provisions requiring that loans comply with § 72(p)(2)(A), (B), and (C).

(4) Failure to obtain spousal consent for a plan loan. (a) Spousal consent

obtained. The correction method for the failure to obtain spousal consent for a plan

loan is that the Plan Sponsor must notify the affected participant and spouse (the

spouse to whom the participant was married at the time of the plan loan), so that the

spouse can provide spousal consent to the plan loan.

nd (C).

(4) Failure to obtain spousal consent for a plan loan. (a) Spousal consent

obtained. The correction method for the failure to obtain spousal consent for a plan

loan is that the Plan Sponsor must notify the affected participant and spouse (the

spouse to whom the participant was married at the time of the plan loan), so that the

spouse can provide spousal consent to the plan loan.

(b) No spousal consent obtained. If spousal consent is not obtained, as

described in section 6.07(4)(a), the failure to obtain spousal consent for a plan loan

must be corrected under either VCP or Audit CAP.

(5) Number of loans exceeds a loan limitation established by plan. An

Operational Failure that results from a participant obtaining a number of loans that

exceeds the number of loans permitted under the terms of the plan may be corrected by

adopting a plan amendment in accordance with the correction method set forth in

section 2.07(3) of Appendix B.

.08 Correction under statute or regulations. Generally, none of the correction

programs is available to correct failures that can be corrected under the Code and

related regulations. For example, as a general rule, a Plan Document Failure that is a

disqualifying provision for which the remedial amendment period under § 401(b) has not

expired can be corrected under provisions of the Code through retroactive remedial

amendment.

.09 Matters subject to excise or other taxes. (1) General rule. Except as

provided in this revenue procedure, the correction programs are not available for events

for which the Code provides tax consequences other than plan disqualification (such as

the imposition of an excise tax or additional income tax). For example, funding

deficiencies (failures to make the required contributions to a plan subject to § 412),

prohibited transactions, and failures to file the Form 5500 series cannot be corrected

under this revenue procedure.

t available for events

for which the Code provides tax consequences other than plan disqualification (such as

the imposition of an excise tax or additional income tax). For example, funding

deficiencies (failures to make the required contributions to a plan subject to § 412),

prohibited transactions, and failures to file the Form 5500 series cannot be corrected

under this revenue procedure.

(2) Section 4974. As part of VCP and Audit CAP, if a failure involves the failure

to satisfy the minimum required distribution requirements of § 401(a)(9), in appropriate

cases, the IRS will waive the excise tax under § 4974 applicable to plan participants or

Page 42 of 125

beneficiaries. The waiver will be included in the compliance statement or in the closing

agreement in the case of Audit CAP. Under VCP, the Plan Sponsor, as part of the

submission, must request the waiver and, in cases where the participant subject to the

excise tax is either an owner-employee as defined in § 401(c)(3) or a 10% owner of a

corporation, the Plan Sponsor must also provide an explanation supporting the request.

Under Audit CAP, the Plan Sponsor must make a specific request for waiver of the

excise tax under § 4974. The Plan Sponsor should also provide an explanation

supporting the request for a waiver. Upon reviewing the request, the reasons for the

failure, and other facts or circumstances of the case under examination, the IRS will

determine whether it is appropriate to approve the waiver of the excise tax as part of the

closing agreement negotiated under Audit CAP.

(3) Section 4972. As part of VCP, if the failure involves a correction that requires

the Plan Sponsor to make a plan contribution that is not deductible, in appropriate

cases, the IRS will not pursue the excise tax under § 4972 on such nondeductible

contributions. The Plan Sponsor, as part of the submission must request the relief and

provide an explanation supporting the request.

t CAP.

(3) Section 4972. As part of VCP, if the failure involves a correction that requires

the Plan Sponsor to make a plan contribution that is not deductible, in appropriate

cases, the IRS will not pursue the excise tax under § 4972 on such nondeductible

contributions. The Plan Sponsor, as part of the submission must request the relief and

provide an explanation supporting the request.

(4) Section 4979. As part of VCP, if a failure results in excess contributions as

defined in § 4979(c) or excess aggregate contributions as defined in § 4979(d) under a

plan, in appropriate cases, the IRS will not pursue the excise tax under § 4979, for

example, where correction is made for any case in which the ADP test was timely

performed but, due to reliance on inaccurate data, resulted in an insufficient amount of

excess elective deferrals having been distributed to HCEs. The Plan Sponsor, as part

of the submission, must request the relief and provide an explanation supporting the

request.

(5) Section 4973. Subject to section 6.03(4), as part of VCP, in appropriate

cases, the IRS will not pursue the excise tax under § 4973 relating to excess

contributions made to a 403(b) Plan or IRA under any of the following circumstances:

(a) As part of the proposed correction for Overpayments, the participant or

beneficiary (“recipient”) removes the Overpayment (adjusted for Earnings) from the

recipient’s 403(b) Plan or IRA and returns that amount to the plan.

cases, the IRS will not pursue the excise tax under § 4973 relating to excess

contributions made to a 403(b) Plan or IRA under any of the following circumstances:

(a) As part of the proposed correction for Overpayments, the participant or

beneficiary (“recipient”) removes the Overpayment (adjusted for Earnings) from the

recipient’s 403(b) Plan or IRA and returns that amount to the plan.

(b) As part of the proposed correction for Excess Amounts, the recipient removes

the Excess Amount (adjusted for Earnings) from the recipient’s 403(b) Plan or IRA and

reports that amount (reduced by any applicable after-tax employee contribution) as a

taxable distribution for the year in which the Excess Amount (adjusted for Earnings) is

removed from the recipient’s 403(b) Plan or IRA. The amount removed is generally

taxed in a manner that is similar to the manner in which the corrective disbursement of

elective deferrals is taxed, as described in section 3 of Rev. Proc. 92-93.

Page 43 of 125

§ 4973 excise tax and provide an explanation supporting the request.

(6) Section 72(t). As part of VCP, in appropriate cases, the IRS will not pursue

the 10% additional income tax under § 72(t) (or will pursue only a portion thereof) if, as

part of the proposed correction of an Overpayment that occurred solely because an

employee received a distribution from his or her vested account balance that was not a

distributable event, the participant or beneficiary (“recipient”) returns the improperly

distributed amount, adjusted for Earnings, to the plan. If the improperly distributed

amount was rolled over to the recipient’s IRA, then correction will include removing the

amount improperly distributed and rolled over (adjusted for Earnings) from the

recipient’s IRA and returning that amount to the plan

stributable event, the participant or beneficiary (“recipient”) returns the improperly

distributed amount, adjusted for Earnings, to the plan. If the improperly distributed

amount was rolled over to the recipient’s IRA, then correction will include removing the

amount improperly distributed and rolled over (adjusted for Earnings) from the

recipient’s IRA and returning that amount to the plan. In appropriate cases, as a

condition for not pursuing all or a portion of the additional tax, the IRS may require the

Plan Sponsor to pay a sanction not in excess of the 10% additional income tax under §

72(t). The Plan Sponsor, as part of the submission, must request the relief and provide

an explanation supporting the request.

.10 Correction for 403(b) Plans. (1) Correction for 403(b) Plans generally.

Except as provided in sections 6.03(2) and 6.10(2), the correction for a 403(b) Plan is

expected to be the same as the correction required for a Qualified Plan with the same

Failure (that is, a Plan Document Failure, Operational Failure, Demographic Failure, or

Employer Eligibility Failure).

(2) Special correction principles. In general, a 403(b) Failure can be corrected by

treating a contract as a § 403(c) annuity contract (or, if applicable, as an amount to

which § 61, 83, or 402(b) applies), such as for purposes of correcting an Employer

Eligibility Failure, a failure to provide for full vesting (including a failure to maintain a

separate account), or an exchange made to a vendor which is not part of the plan (and

for which there is no information sharing agreement). In addition, for purposes of this

revenue procedure, a 403(b) Plan will be treated as having a Favorable Letter if either

for purposes of correcting an Employer

Eligibility Failure, a failure to provide for full vesting (including a failure to maintain a

separate account), or an exchange made to a vendor which is not part of the plan (and

for which there is no information sharing agreement). In addition, for purposes of this

revenue procedure, a 403(b) Plan will be treated as having a Favorable Letter if either

(a) the employer is an eligible employer and, on or before December 31, 2009 (or the

date a 403(b) Plan is established, if later), the employer has adopted a written 403(b)

Plan that is intended to satisfy § 403(b) (including the regulations thereunder) effective

as of January 1, 2009 (or the first day of the plan year in which a 403(b) Plan is

established, if later), or (b) the employer has failed to adopt a written 403(b) Plan timely

and corrects the failure in accordance with section 6.10(3) below. In addition, for

purposes of section 4.04 (requiring that the Plan Sponsor or administrator of the plan

have established practices and procedures reasonably designed to promote and

facilitate overall compliance with applicable Code requirements in order to be eligible for

SCP to be available to correct Operational Failures and Plan Document Failures), the

requirement to have established practices and procedures only applies for failures

during periods after December 31, 2009.

Page 44 of 125

(3) Correction for failure to adopt a written 403(b) Plan timely. A failure to adopt

a written 403(b) Plan timely in accordance with the final regulations under § 403(b) and

Notice 2009-3 may be corrected under VCP or Audit CAP. The issuance of a

compliance statement or closing agreement for the failure to adopt a written 403(b) Plan

timely will result in the written 403(b) Pl

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