Susan DiehlIn General
Effective Jan. 2, 2018, the IRS under Revenue Procedure 2018-4, simplified the user fees charged for most submissions made under the Voluntary Correction Program (VCP).
The total amount of net plan assets determines the applicable user fee. Most alternative or reduced fees that were part of previous revenue procedures no longer apply.The Good News
Large employers (over 100 participants) before 2018 paid the IRS based on the number of participants, and such fees ranged from $5,000 to $15,000. These employers will pay a significantly reduced amount when submitting under the IRS’ VCP. Refer to the chart below for any VCP submissions made on or after Jan. 2, 2018.
VCP fees are:
The Really Bad News
- IRS user fees (see Internal Revenue Code (IRC) Section 7528),
Small employers (under 100 participants) and all SEPs and SIMPLE-IRAs will have to pay a significantly higher amount to submit their corrections under VCP. A SEP or SIMPLE-IRA Employer could submit corrections before 2018 for $250 per plan. This was a reasonable fee for small employers who wanted to do the right thing. The $250 fee in 2018 becomes $1,500 — a 600% increase!
For small qualified plan employers — most of which fell into the category 20 or fewer employees the fee for corrections filed before 2018 was $500. The $500 fee in 2018 becomes at least $1,500, a mere 300% increase.
This change may shut down the submission of employer failures under these plans, since it is no longer a reasonable fee for the small employer.
Keep in mind this was done without warning and no discussion with the industry on the thought of erasing the streamlined lower fees for small employers!
New IRS User Fees (Applicable Jan. 2, 2018)
|Amount of Assets in the Plan ||IRS User Fee |
| $0-$500,000 || $1,500 |
| Over $500,000 to $10,000,000 || $3,000 |
| Over $10,000,000 || $3,500 |
Determining the Net Plan Assets
In many cases, you determine the amount of plan’s net assets from its most recently filed Form 5500-series return. If your plan is not required to file a Form 5500-series return (see Rev. Proc. 2018-4, Appendix A.09 for additional information).
According to the Revenue Procedure, for SEP/SARSEP/SIMPLE IRA plans, the amount of plan assets is the total value of all plan participants’ IRA account balances associated with the plan. In reality this is a figure that the employer with employees cannot ascertain, unless all employees agree. Remember these are invested in individual IRAs and the employer unlike a qualified plan or 403(b) plans does not have access (and can’t have access) to the individual employee’s IRAs. In the past the IRS has permitted employers to add up all contributions that have been made to the IRA over the years and use that amount as the “net assets” under the Plan.
Exceptions to Asset Based VCP Fees
The new fee schedule doesn’t apply to Group VCP submissions, or submissions for Orphan or 457(b) plans (see Rev. Procs. 2018-4 and 2016-51). These special rules are the only ones that remain under the old fee schedule:
- Group Submissions. First 20 plans have a user fee of $10,000, with an additional $250 over the 20 plans and a maximum fee of $50,000.
- Governmental 457(b) Plans. These are accepted on a provisional basis under Rev. Proc 2016-51.
Reporting Fees on Form 8951
- Orphan Plans. IRS may waive all fees for a termination of an Orphan Plan
The IRS is revising Form 8951, Compliance Fee for Application for Voluntary Correction Program (VCP). Until a revised form is available you can continue to use the current version (the 9-2016 version). Ignore the information on the form that no longer applies to the fees.Final Word
This may not be the final word. We understand that the trade associations have been discussing this with the IRS and other parties in an effort to bring back the reduced fees for small employers.Susan D. Diehl, CPC, QPA, ERPA, is President, PenServ Plan Services, Inc. and Chair of the NTSA Communications Committee.