# Rev. Proc. 2019-19: Page 1 of 125 > Federal · IRS revenue procedures · In force URL: https://www.frixlaw.com/law-library/statutes/IRS_RP_2019_19 ## Section - **Citation:** Rev. Proc. 2019-19 - **Heading:** Page 1 of 125 - **Jurisdiction:** Federal - **Kind:** IRS revenue procedures - **Status:** In force - **Text as of:** August 14, 2026 - **Source:** Compiled text - **Location:** Internal Revenue Bulletin / IRB 2019 / Revenue Procedure / Rev. Proc. 2019-19 ## Text Page 1 of 125 Rev. Proc. 2019-19 TABLE OF CONTENTS PART I. INTRODUCTION TO EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM SECTION 1. PURPOSE AND OVERVIEW .01 Purpose ............................................................................................ p. .02 General principles underlying EPCRS ............................................. p. .03 Overview .......................................................................................... p. SECTION 2. EFFECT OF THIS REVENUE PROCEDURE ON PROGRAMS .01 Effect on programs ........................................................................... p. .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 ……………............................ p. .02 Compliance statement ..................................................................... p. .03 Excise and other taxes …................................................................. p. .04 Reliance ........................................................................................... p. SECTION 4. PROGRAM ELIGIBILITY .01 EPCRS Programs …………………………………………………...... p. .02 Effect of examination ...................................................................... p. .03 SCP eligibility requirements relating to plan documents ................ p. .04 Established practices and procedures ........................................... p. .05 Correction by plan amendment ...................................................... p. .06 Availability of correction for Employer Eligibility Failures and Demographic Failures ...................................................................... p. .07 Availability of correction for a terminated plan ……..……….......…. p es ........................................... p. .05 Correction by plan amendment ...................................................... p. .06 Availability of correction for Employer Eligibility Failures and Demographic Failures ...................................................................... p. .07 Availability of correction for a terminated plan ……..……….......…. p. .08 Availability of correction for an Orphan Plan …..….……..…….….… p. .09 Availability of correction for § 457(b) plans …..………………….…... p. .10 Egregious failures ……………………………………………………. .. p. .11 Diversion or misuse of plan assets …........................................... p. .12 Abusive tax avoidance transactions ……………..……..………….. p. Page 2 of 125 PART III. DEFINITIONS, CORRECTION PRINCIPLES, AND RULES OF GENERAL APPLICABILITY SECTION 5. DEFINITIONS .01 Definitions for Qualified Plans ........................................................ p. .02 Definitions for 403(b) Plans ............................................................ p. .03 Definitions for Orphan Plans ...……………………………………..... p. .04 Earnings ……………………………………………………….…..…... p. .05 IRA ………………………………………………………………..……. p. .06 SEP ………………………………………………………….……….… p. .07 SIMPLE IRA Plan ………………………………………….…………. p. .08 Under Examination ......................................................................... p. SECTION 6. CORRECTION PRINCIPLES AND RULES OF GENERAL APPLICABILITY .01 Correction principles; rules of general applicability ........................ p. .02 Correction principles ...................................................................... p. .03 Correction of an Employer Eligibility Failure .................................. p. .04 Correction of a failure to obtain spousal consent …………….…... p. .05 Determination letter application not permitted ………..………....... p. .06 Special rules relating to Excess Amounts ..................................... p ..................................................................... p. .03 Correction of an Employer Eligibility Failure .................................. p. .04 Correction of a failure to obtain spousal consent …………….…... p. .05 Determination letter application not permitted ………..………....... p. .06 Special rules relating to Excess Amounts ..................................... p. .07 Rules relating to reporting plan loan failures ……………..……….. p. .08 Correction under statute or regulations ......................................... p. .09 Matters subject to excise or other taxes ........................................ p. .10 Correction for 403(b) Plans ........................................................... p. .11 Correction for SEPs and SIMPLE IRA Plans ................................. p. .12 Confidentiality and disclosure ......................................................... p. .13 No effect on other law ..................................................................... p. PART IV. SELF-CORRECTION (SCP) SECTION 7. AVAILABILITY OF SCP FOR CERTAIN OPERATIONAL FAILURES AND PLAN DOCUMENT FAILURES .01 In general …………………………………………………………….. p. .02 Operational Failures ………………………………………………….. p. .03 Plan Document Failures ……………………………………………... p. SECTION 8. SELF-CORRECTION OF INSIGNIFICANT OPERATIONAL FAILURES .01 Requirements ................................................................................. p. .02 Factors .......................................................................................... p. .03 Multiple failures ............................................................................. p. Page 3 of 125 .04 Examples ...................................................................................... p. SECTION 9 ....................................... p. .02 Factors .......................................................................................... p. .03 Multiple failures ............................................................................. p. Page 3 of 125 .04 Examples ...................................................................................... p. SECTION 9. SELF-CORRECTION OF CERTAIN SIGNIFICANT OPERATIONAL FAILURES AND PLAN DOCUMENT FAILURES .01 Requirements ................................................................................. p. .02 Correction period ............................................................................ p. .03.Substantial completion of correction …………………….................. p. .04 Examples ........................................................................................ p. PART V. VOLUNTARY CORRECTION PROGRAM WITH IRS APPROVAL (VCP) SECTION 10. VCP PROCEDURES .01 VCP requirements ........................................................................ p. .02 Identification of failures ................................................................. p. .03 Effect of VCP submission on examination .................................... p. .04 No concurrent examination activity ............................................... p. .05 Determination letter applications not related to a VCP submission ……………………………………………………….……. p. .06 Processing of submission ............................................................... p. .07 Compliance statement .................................................................... p. .08 Effect of compliance statement on examination …….………........... p. .09 Special rules relating to Anonymous Submissions …......…………. p. .10 Special rules relating to Group Submissions ................................... p. .11 Multiemployer and multiple employer plans ..................................... p. SECTION 11 ......................................................... p. .08 Effect of compliance statement on examination …….………........... p. .09 Special rules relating to Anonymous Submissions …......…………. p. .10 Special rules relating to Group Submissions ................................... p. .11 Multiemployer and multiple employer plans ..................................... p. SECTION 11. SUBMISSION PROCEDURES FOR VCP .01 General rules ................................................................................... p. .02 Submission of model forms .……………………………..….…...….. p. .03 Mandatory submission process using the www.pay.gov website ........ p. .04 PDF file submission contents ……………………………………..…. p. .05 User fee due at the time of VCP submission using the www.pay.gov website.………………………………………………..……….……… p. .06 Additional amount due for Group Submissions ............................... p. .07 Additional amounts due for certain submissions. ........................... ...... p. .08 Power of attorney requirements …………………..................... ... p. .09 Acknowledgement of filing ……………………………………..………. p. .10 Maintenance of copies of submission …………………….……..…….. p. .11 Assembling the submission ................................................................. p. SECTION 12. VCP USER FEES .01 User fees .......................................................................................... p. PART VI. CORRECTION ON AUDIT (AUDIT CAP) Page 4 of 125 SECTION 13. DESCRIPTION OF AUDIT CAP .01 Audit CAP requirements ................................................................... p. .02 Payment of sanction ......................................................................... p. .03 Additional requirements .................................................................... p. .04 Failure to reach resolution ................................................................ p P requirements ................................................................... p. .02 Payment of sanction ......................................................................... p. .03 Additional requirements .................................................................... p. .04 Failure to reach resolution ................................................................ p. .05 Effect of closing agreement .............................................................. p. .06 Other procedural rules ...................................................................... p. SECTION 14. AUDIT CAP SANCTION .01 Determination of sanction ................................................................. p. .02 Factors considered ........................................................................... p. .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 .............................................. p. DRAFTING INFORMATION APPENDIX A: OPERATIONAL FAILURES AND CORRECTION METHODS .01 General rule ...................................................................................... p. .02 Failure to properly provide the minimum top-heavy benefit under § 416 to non-key employees ………...................... p. .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) …………………………................ p .............................. p. .02 Failure to properly provide the minimum top-heavy benefit under § 416 to non-key employees ………...................... p. .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) …………………………................ p. .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. Page 5 of 125 .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 …………………................................................................. p. .08 Failure to satisfy the § 415 limits in a defined contribution plan ……………………………………………………… p. .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 .......................................................................................... p. .02 Assumptions for Examples .............................................................. p. .03 Designated Roth contributions ......................................................... p. .04 Section references ………………………………..….………………… p. SECTION 2. CORRECTION METHODS AND EXAMPLES .01 ADP/ACP Failures ........................................................................... p .02 Assumptions for Examples .............................................................. p. .03 Designated Roth contributions ......................................................... p. .04 Section references ………………………………..….………………… p. SECTION 2. CORRECTION METHODS AND EXAMPLES .01 ADP/ACP Failures ........................................................................... p. .02 Exclusion of Otherwise Eligible Employees .................................... p. .03 Vesting Failures ……………………………………….………..….….. p. .04 § 415 Failures .................................................................................. p. .05 Correction of Other Overpayment Failures ..……….……..….….…. p. .06 § 401(a)(17) Failures ...…………………………………..………….... p. .07 Correction by Amendment ……………………………………..…...... p. SECTION 3. EARNINGS ADJUSTMENT METHODS AND EXAMPLES .01 Earnings Adjustment Methods ........................................................ p. .02 Examples ......................................................................................... p. Page 6 of 125 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. 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 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. (c) Plan loan statutory failures. Section 6.07(3)(b) and (c) provides that failures 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. (c) SEPs and SIMPLE IRA Plans. SEPs and SIMPLE IRA Plans are eligible to be corrected under SCP only with respect to insignificant Operational Failures. (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. (c) Plan Document Failures. A Plan Sponsor of a Qualified Plan or 403(b) Plan may use SCP to correct an eligible Plan Document Failure, as described in section 4.01(1)(b), only if the following conditions are satisfied: (i) The Qualified Plan or 403(b) Plan has been issued a Favorable Letter, as respectively defined in sections 5.01(4) and 5.02(5). (ii) The Plan Sponsor satisfies the requirements in section 9 relating to correcting a Plan Document Failure. Thus, for example, the Plan Sponsor must adopt a corrective plan amendment by the end the correction period set forth in section 9.02. .06 Availability of correction for Employer Eligibility Failures and Demographic Failures. SCP is not available for a Plan Sponsor to correct Employer Eligibility Failures or Demographic Failures. .07 Availability of correction for a terminated plan. Correction of Qualification Failures and 403(b) Failures in a terminated plan may be made under VCP or Audit CAP, whether or not the plan trust or contract is still in existence. .08 Availability of correction for an Orphan Plan 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. (c) Audit CAP and SCP (for plans Under Examination). For plans Under Examination, if the IRS determines that the plan or Plan Sponsor was, or may have been, a party to an abusive tax avoidance transaction, the matter may be discussed and coordinated with appropriate IRS personnel. With respect to plans Under Examination, an abusive tax avoidance transaction includes a transaction described in section 4.12(2) and any other transaction that the IRS determines was designed to facilitate the impermissible avoidance of tax. Upon receiving a response from the appropriate IRS personnel, (i) if the IRS determines that a failure is related to the abusive tax avoidance transaction, the IRS reserves the right to conclude that neither Audit CAP nor SCP is available for that failure, or (ii) if the IRS determines that satisfactory corrective actions have not been taken with regard to the transaction, the IRS reserves the right to conclude that neither Audit CAP nor SCP is available to the plan. 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. (C) “Nonamender Failure” means a failure to adopt an amendment that corrects a disqualifying provision described in §1.401(b)-1(b) within the applicable remedial amendment period. In general, a disqualifying provision includes a provision in the plan document that violates a qualification requirement of the Code or the absence of a provision that causes the plan to fail to satisfy a qualification requirement of the Code. A disqualifying provision also includes any provision designated by the Commissioner as a disqualifying provision under §1.401(b)-1(b)(3). See sections 5 and 15 of Rev. Proc. 2016-37. 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. (c) Demographic Failure. The term "Demographic Failure" means a failure to satisfy the requirements of § 401(a)(4), 401(a)(26), or 410(b) that is not an Operational Failure or an Employer Eligibility Failure. The correction of a Demographic Failure generally requires a corrective amendment to the plan adding more benefits or increasing existing benefits (see §1.401(a)(4)-11(g)). Failure. (c) Demographic Failure. The term "Demographic Failure" means a failure to satisfy the requirements of § 401(a)(4), 401(a)(26), or 410(b) that is not an Operational Failure or an Employer Eligibility Failure. The correction of a Demographic Failure 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). (c) Overpayment. The term "Overpayment" means a Qualification 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 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); (c) additional income tax resulting from income inclusion for participants in the plan (Form 1040, U.S. Individual Income Tax Return), including the tax on plan distributions that have been rolled over to other qualified trusts (as defined in § 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; ); (c) additional income tax resulting from income inclusion for participants in the plan (Form 1040, U.S. Individual Income Tax Return), including the tax on plan distributions that have been rolled over to other qualified trusts (as defined in § 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. (c) Demographic Failure. The term "Demographic Failure" means a failure to satisfy the requirements of § 401(a)(4), 401(a)(26), or 410(b) (as applied to 403(b) Plans pursuant to § 403(b)(12)(A)(i)) that is not an Operational Failure or an Employer Eligibility Failure. The correction of a Demographic Failure generally requires a corrective amendment to the plan adding more benefits or increasing existing benefits (see §1.401(a)(4)-11(g)). 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 (c) In the case of a Qualified Plan to which Title I of ERISA has never applied, a surviving spouse who is the sole beneficiary of a plan that provided benefits to a participant who was (i) the sole owner of the business that sponsored the plan and (ii) the only participant in the plan. .04 Earnings. The term “Earnings” refers to the adjustment of a principal amount to reflect subsequent investment gains and losses, unless otherwise provided in a specific section of this revenue procedure. .05 IRA. The term “IRA” means an individual retirement account (as defined in § 408(a)) or an individual retirement annuity (as defined in § 408(b)). 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. (c) The correction method for failures relating to nondiscrimination should provide benefits for nonhighly compensated employees. For example, for Qualified Plans, the correction method set forth in §1.401(a)(4)-11(g) (rather than methods making use of the special testing provisions set forth in §1.401(a)(4)-8 or §1.401(a)(4)-9) would be the typical means of correcting a failure to satisfy nondiscrimination requirements. Similarly, the correction of a failure to satisfy the requirements of § 401(k)(3) or 401(m)(2), or, for plan years beginning on or before December 31, 2001, the multiple use test of § 401(m)(9) (relating to nondiscrimination), solely by distributing excess amounts to highly compensated employees would not be the typical means of correcting such a failure. (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. (c) Corrective allocations should come only from employer nonelective contributions (including forfeitures if the plan permits their use to reduce employer contributions). For purpose of correcting a failed ADP, actual contribution percentage (ACP), or multiple use test, any amounts used to fund qualified nonelective contributions (QNECs) must satisfy the definition of QNEC in §1.401(k)-6. (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 (C) in the case of a failure to satisfy § 436(e), the amount described in § 436(e)(2) with respect to that failure. See also section 6.06(3) for correction of an Overpayment (including a payment of benefits that exceeds the limitations imposed by § 436(d) or 436(b), (c), or (e)). (ii) A corrective distribution or a corrective amendment (where a correction is accomplished through a plan amendment) is not subject to the requirements of § 436, but, if the plan is subject to a restriction pursuant to § 436 at the time of the correction, generally the Plan Sponsor must make a contribution to the plan at the time of the correction in the following amount: (A) if a corrective distribution is made in a 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. (c) Recovery of small Overpayments. Generally, if the total amount of an 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 [Text truncated at 120,000 characters. The full text is on the page linked above.] ## Nearby sections - [Rev. Proc. 2019-6 26 CFR 601.201: Rulings and determination letters. (Also: Part I, Sections 832, 846; 1.832-4, 1.846-1.)](https://www.frixlaw.com/law-library/statutes/IRS_RP_2019_6.md) - [Rev. Proc. 2019-8 26 CFR 1.179-5: Time and manner of making election. (Also Part 1, §§ 168, 446; 1.168(i)-4, 1.446-1.)](https://www.frixlaw.com/law-library/statutes/IRS_RP_2019_8.md) - [Rev. Proc. 2019-10 26 CFR 601.204: Changes in accounting periods and in methods of accounting. (Also: Part I, §§ 446, 481, 807.)](https://www.frixlaw.com/law-library/statutes/IRS_RP_2019_10.md) - [Rev. 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