ERISA Practitioners, Employee Benefit Plan Sponsors and Administrators: Beware of New Procedures and Guidelines Issued By the IRS Regarding Its Voluntary Correction Program Which Serves to Ameliorate Non-Compliant Employee Benefit Plans of Their Tax-Qualification Errors Under ERISA and the Internal Revenue Code
Under the Internal Revenue Services' (“IRS”) Voluntary Correction Program (“VCP”) plan sponsors of tax-qualified employee benefit plans are capable, at any time preceding an audit of the employee benefit plan by the IRS, to freely proclaim to the IRS tax-qualification failures detected in the plan. In doing so, the plan sponsor pays a minor fee and requests IRS-approval for correcting the plan's failure(s) when the proper procedures are followed in accordance with the compliance statement.
Currently, the general requirements under the VCP established by the IRS will be fulfilled with acknowledgement of disclosed plan failures so long as the plan's sponsor: (1) furnishes the compliance fee noted above (the value of which is determined according to a graduated range of fees based on the number of participants in the plan); and (2) implements the VCP procedures in accordance with the compliance statement. The compliance statement issued for a VCP submission identifies: (a) the plan's failure(s); (b) the terms of correction, including any revision of administrative procedures; and © the time period within which proposed corrections must be implemented, including any change in administrative procedure(s).
On January 24, 2013, the IRS promulgated that standardized forms for current use in the IRS' VCP for non-complaint employee benefit plans will be available for practitioners on the IRS's website.
The updated revenue procedure for correction of the non-qualified status of employee benefit plans is projected to become effective April 1, 2013, but it may be used at the discretion of practitioners/plan sponsors prior to that date.
One rule surrounding the implementation of the new VCP procedures is that practitioners are precluded from altering the form or content of the VCP application submissions to the IRS. The forms are thus standardized and need not, nor are allowed, to include information the IRS has not announced it requires to make a determination on the tax-qualification of the employee benefit plan.
Although these forms are standardized and available on the IRS's website for submission directly to the IRS, it is still recommended that any plan sponsor consult with an employee benefits practitioner to allow the practitioner to draft the VCP submission application in order to ensure the proper information and documentation have been provided to the IRS.
Butterfield Schechter LLP can help you if your plan has suffered qualification defects which may be corrected through the Voluntary Correction Program. If you have any questions, please contact us at (858) 444-2300.