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ARA Recommends Expansion of Self Correction Program

By John Iekel • April 04, 2018 • 0 Comments

With the IRS having rebuffed its recommendation to reconsider the disparate impact on small plans of the new pricing structure for the Voluntary Compliance Program (VCP), the American Retirement Association has recommended changes designed to expand the program and offset that result.

The ARA on April 4 filed a comment letter with the IRS to recommend modifications to the Employee Plans Compliance Resolution System (EPCRS) that would expand the use of the self correction program (SCP) and reduce the burden the VCP’s new pricing structure imposes on small business plans.

The ARA writes that the myriad rules applicable to retirement plans are “difficult for any plan sponsor to navigate, and particularly difficult for small businesses, including small governmental entities and charities, which have limited resources and do not generally have the ability to employ dedicated benefits personnel.” In addition, it asserts, “the ability of plan sponsors to voluntarily correct plan errors at a reasonable cost is important in a sponsor’s decision to adopt and maintain a retirement plan.”

“Unfortunately,” notes the letter, “the recent increase in VCP user fees has made this much more difficult, particularly for small businesses.” The ARA considers it “critically important” that if the higher user fees are to remain in effect, “the IRS offset their detrimental impact by expanding the opportunities for self-correction under EPCRS.”

Remove Barriers

The ARA recommends that the IRS make the following changes to remove barriers to the use of the SCP:

  • Extend the period for self-correcting significant errors in EPCRS Section 9.02.

  • Add new earnings adjustment calculation methods to the existing safe harbor methods provided in EPCRS Appendix B, Section 3.

  • Clarify the definition of an insignificant operational failure under EPCRS Section 8.02.

  • Include guidance relating to overpayments and earnings calculations from defined benefit plans.

Expand the SCP

The ARA recommends that the IRS expand the SCP to permit the correction of operational errors benefitting participants and errors made by nonamenders. It suggests that it do so by:

  • expanding EPCRS to permit a plan sponsor to self-correct errors through a retroactive plan amendment to conform the plan terms with the plan’s actual operation whenever the benefits provided in practice were higher or more broadly available than what the plan document stipulated; and

  • expanding the SCP to provide that if a plan sponsor discovers that its plan has not been updated for interim amendments or required restatement either within the SCP period for significant errors or for the one year period following discovery of the error during a review in anticipation of a merger or acquisition, the plan sponsor should be permitted to amend the plan under SCP to bring the plan back into compliance.

The ARA further suggests that the IRS expand the SCP regarding plan loan failures by:

  • issuing guidance expanding the operational failures related to participant loans to be corrected under the SCP component of EPCRS; and

  • expanding the SCP to permit correction of a variety of operational loan errors that are otherwise eligible for SCP.

And after expanding the SCP, the ARA suggests, the IRS should review closed VCP cases to see if any additional types of corrections that the IRS repeatedly reviews lend themselves to self-correction because the correction methodology is well-understood by the industry.

Alternative Suggestions

If an outright expansion of the SCP cannot accomplish any of these expansions, the ARA also makes four alternative recommendations regarding ways the IRS can expand EPCRS in order to reduce the burdens on the IRS and plan sponsors relating to plan corrections:

  • Require completion and retention of streamlined VCP Forms for SCP corrections. It further suggests that the waiver of the Internal Revenue Code Section 4974 penalties be automatic for errors corrected through SCP, unless the error affects an owner employee or 10% owner of a corporation. All other requests for excise tax/penalty relief would still require a VCP filing.


  • Require a postcard filing with very minimal information regarding the type of error if the IRS is unwilling to expand the SCP to cover an error because the it wants to track the prevalence of a certain correction.


  • Create a no-review VCP option for a reduced fee to the extent the IRS believes the SCP should be categorically unavailable for a certain failure.


  • Reinstate the discounted fees for common errors as previously set forth in Revenue Procedure 2017-4, Appendix A, Section 9 retroactively. “The retroactive reinstatement of these discounts will be of tremendous help in promoting the number of plan sponsors who will use VCP,” writes the ARA.


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