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© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California 94111 Telephone: 415-788-3111 | Facsimile: 415-421-2017 The.

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Presentation on theme: "© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California 94111 Telephone: 415-788-3111 | Facsimile: 415-421-2017 The."— Presentation transcript:

1 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: The New EPCRS Has Been Issued: Rev. Proc Ronald J. Triche Jennifer Dack Brooks

2 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Agenda  Overview: What is the EPCRS?  Process: New forms and fees  403(b): Expanded application of EPCRS  Methodology: New correction methodologies

3 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: What is the EPCRS?  Employee Plans Compliance Resolution System  Most recent edition: Revenue Procedure (http://www.irs.gov/pub/irs-drop/rp pdf)http://www.irs.gov/pub/irs-drop/rp pdf > Effective April 1, 2013 (but, you can rely on it in advance)  Composed of three programs > Self Correction Program (“SCP”) > Voluntary Correction Program with Service Approval (“VCP”) > Correction on Audit (“Audit CAP”)  If a plan sponsor corrects in accordance with one of the EPCRS programs the Internal Revenue Service (“IRS”) will not treat the plan as failing to meet the qualification requirements of the Internal Revenue Code (“Code”)

4 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Qualification Failures  Any failure that adversely affects the qualified status of a plan  Under EPCRS, there are generally 4 types of Qualification Failures: > Plan Document Failure – a plan provision (or absence thereof) that, on its face, violates the requirements of Code Sections 401(a) or 403(b) > Operational Failure – arises solely from the failure to follow plan provisions > Demographic Failure – failure to satisfy the nondiscrimination requirements, participation requirements or coverage requirements that is not an Operational Failure > Employer Eligibility Failure – the adoption of a 401(k) or 403(b) plan by an ineligible employer  Special rule for Code Section 457(b) plans

5 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: New Forms for EPCRS Submissions  Form 8950 (Application for Voluntary Correction Program (VCP)) > Form 8950 (http://www.irs.gov/pub/irs- pdf/f8950.pdf)http://www.irs.gov/pub/irs- pdf/f8950.pdf > Must be included with all VCP submissions sent to the IRS on or after April 1, 2013 > Combines the old Appendix C (VCP Checklist) with parts of the old Appendix D (VCP Submission)

6 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: New Forms for EPCRS Submissions  Form 8951 (Compliance Fee for Approval for Voluntary Correction Program Submission Under the Employee Plans Compliance Resolution System (EPCRS)) > Form 8951 (http://www.irs.gov/pub/irs- pdf/f8951.pdf)http://www.irs.gov/pub/irs- pdf/f8951.pdf > Must be included with all VCP submissions sent to the IRS on or after April 1, 2013 > Similar to the Form 8717 used for a Determination Letter Application (“DLA”) > The filing fee check must be “attached” to the Form 8951 and a copy of the check must be included

7 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: New Forms for EPCRS Submissions  New Appendix C (Model VCP Submission Documents) > Part I – Model VCP Submission Compliance Statement Incorporates many features of the old Schedule D > Part II Consists of 9 Schedules Replaces the Old Appendix F and its 9 Schedules

8 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: New Forms for EPCRS Submissions  New Appendix C > New forms are not required to be used Can use Part I and Part II together or separately > No changes may be made to the format or content of the Model VCP Submission Compliance Statement or any Schedule Home purchase loan correction issue (Part II, Schedule 5)  New Appendix D (Acknowledgement Letter) > Replaces old Appendix E

9 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Assembling Your EPCRS Submissions  For a 403(b) plan VCP Submission, you must > Include a statement (if applicable) that the plan sponsor Has contacted all other entities involved with the plan, and Has been assured cooperation in implementing the correction > Include a statement as to the type of employer that is making the submission For example: “This VCP Submission is being submitted by a tax-exempt organization described in Code Section 501(c)(3)”

10 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Assembling Your EPCRS Submissions  If you are sending in a VCP Submission and a DLA > They must be mailed in a single package > They must be assembled separately and include duplicate documents (where necessary) > If a plan restatement is evidence of the correction, you must identify The page and section of the document, and The specific plan language that resolved the Qualification Failure

11 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Assembling Your EPCRS Submissions  Anonymous VCP Submissions must include the following statements > “Under penalties of perjury, I declare that I am an authorized representative of the Plan Sponsor who complies with the Power of Attorney requirements described in section of Revenue Procedure I will submit an executed Form 2848 upon the disclosure of the Plan Sponsor to the Service.”  New order of required documents > Addition of Forms 8950 and 8951 (with a copy of the check) > Related DLA has been moved to the end of the package

12 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Assembling Your EPCRS Submissions  New addresses First Class MailExpress Mail or Private Delivery Service Internal Revenue Service P.O. Box West Rivercenter Blvd. Covington, KY Attn: Extracting Stop 312 Covington, KY 41011

13 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: VCP Correction Period  Generally, you must substantially complete your correction within 150 days of the date the VCP Compliance Statement is issued by the IRS  The following types of plan sponsors are eligible for an exception if they are affected by the elimination of the IRS letter forwarding service > The plan sponsor received a VCP Compliance Statement and the related 150-day correction period has not expired > The plan sponsor is correcting the failures under SCP and is within 150 days of the end of the 2 nd plan year following the plan year in which the failure occurred

14 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: VCP Correction Period  “Eligible” plan sponsors that are correcting failures that require payment of additional benefits to participants and beneficiaries will have until the earlier of the following dates to take reasonable actions to locate the participants and beneficiaries: > May 30, 2013 > 150 days after the date the IRS notifies the plan sponsor that the request to locate the missing participants and beneficiaries will not be processed Available if the request to use the IRS letter forward service was sent to the IRS after August 31, 2012

15 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: VCP Submission Fees  General fees for a VCP Submission did not change  New reduced fees for certain corrections > Failure to adopt a written 403(b) plan document 50% of the standard fee if – submitted by December 31, 2013, and – this is the only failure submitted > Failure to adopt a required amendment within 90 days after the issuance of a favorable determination letter $500 if it is adopted within 3 months of the deadline

16 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: VCP Submission Fees  Fees for multiple failures that qualify for a reduced fee > The lesser of the standard fee or the sum of the reduced fees  If a Form 5500 is not required for a plan (e.g., non-ERISA 403(b) plans) > The number of participants will generally be the number of participants as of the last day of the previous plan year If this data is not yet available, then use the number of participants from the most-recent plan year for which the data is available – Does not apply if the VCP Submission is mailed more than 7 months after the end of the plan year

17 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: VCP Submission Fees  For multiemployer and multiple employer plans with failures applying to fewer than all of the employers > The administrator may elect to use the number of participants of the affected employer(s) instead of the entire plan  For a pre-approved plan’s group submission, the fee is based on > The number of basic plan documents (as opposed to the number of adoption agreements), and > The number of employers that have adopted the basic plan document by using an adoption agreement associated with the basic plan document  The VCP Submission check may be converted to an “electronic fund transfer” > Usually processed within 24 hours of receipt > The check will not be returned to the applicant

18 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Audit CAP Fees  The Audit CAP fees for nonamender issues not voluntarily identified by the plan sponsor has changed > This must be the only issue discovered by the IRS > The fees in all categories have increased > The “EGTRRA/subsequent legislation” category has been replaced by “Employer’s 2 nd 5 or 6 year Remedial Amendment Cycle”, and “Employer’s 1 st 5 or 6 year Remedial Amendment Cycle”

19 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Audit CAP Fees  If the only issue discovered by the IRS is the failure to adopt good faith amendments, interim amendments, or amendments required to reflect the change in the operation of the plan because of implementation of optional law changes by their applicable deadlines (but before the expiration of the plan’s extended remedial amendment period) > The Audit CAP fee is 40% of the applicable fee (based on the number of participants under the “Employer’s 2 nd 5 or 6 year Remedial Amendment Cycle” category)

20 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Audit CAP Fees  If the only issue discovered by the IRS is the failure to adopt a required amendment within 90 days after the issuance of a favorable determination letter The Audit CAP fee is $1,000 if it is adopted within 3 months of the deadline

21 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: New 403(b) provisions  403(b) plans can now use EPCRS to correct operational and plan document failures > Correction for a 403(b) plan expected to be the same as for a qualified plan > A 403(b) plan is treated as having a favorable determination letter if the eligible employer adopts a written plan effective as of January 1, 2009, or the effective date of the plan or the employer-corrected failure to adopt written plan through VCP > Correction for failure to adopt written plan, Appendix C, Schedule 2 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile:

22 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: New 403(b) provisions  If failure occurred prior to 2009, EPCRS is only available to correct if failure constitutes a violation of Code Section 403(b) > For example, a failure to limit deferrals to the Code Section 402(g) limit  Pre-2009 operational failures (failure to follow plan provisions) may not be corrected through EPCRS > Operational failures occurring in 2009 or after may be corrected

23 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: New Overpayment Correction Methodology  New EPCRS definition: > Payment made to a participant that exceeds the amount payable to the participant under the plan or that exceeds a legal limit > From DB or DC plan > Includes payments from DC plan not paid from a participant’s account, or not permitted to be paid under the Code, regulations, or the plan’s terms © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile:

24 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: New Overpayment Correction Methodology  Overpayment adjusted for earnings at the plan’s earnings rate returned by the participant > Previously, EPCRS referred to appropriate interest  To the extent the Overpayment (adjusted for earnings at the plan’s earnings rate) is not returned, the employer must contribute the difference  Exception: the employer does not have to contribute the difference if the failure arose solely because of a payment from the plan in the absence of a distributable event > For example, an impermissible in-service distribution © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile:

25 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: New Overpayment Correction Methodology  Resolves discrepancy between interest and the plan’s earnings rate  Gave DC plans an exception, but not in all cases > Withdrawal made by participant prior to termination (e.g., transferred to a non-participating member of the controlled group) – not required to make plan whole > Profit sharing contribution incorrectly calculated and the excess amount is distributed to the participant at termination – employer must make plan whole © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile:

26 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Earnings  Rev Proc adds a new definition of “Earnings” > Adjustment of an amount to reflect gains and losses unless otherwise specified  Corrective allocations are not required to be adjusted for losses, must be adjusted for gains, may be adjusted for losses  No specific guidance on application of losses to corrective reductions in account balances © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile:

27 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Exclusion of employee from safe harbor plan  If safe harbor matching contribution, missed deferral equals 3% of compensation, or maximum deferral percentage for 100% match  If safe harbor nonelective contribution, missed deferral equals 3% of compensation  QNEC equals 50% of missed deferral, plus safe harbor match or nonelective contribution © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile:

28 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Exclusion of employee from non-safe harbor plan cont.  If the employee is not permitted to make elective deferrals and did not receive an allocation of a non- safe harbor matching contribution, the employer must make a corrective employer nonelective contribution on behalf of employee > Language changed from QNEC > Corrective contribution may be subject to the plan’s vesting schedule > Corrective contribution may be made from forfeiture account © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile:

29 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: QNEC to Correct ADP or ACP failure  New EPCRS specifically provides that amounts used to fund such QNECs must satisfy the definition of QNEC in Reg. Sec (k)-6 > Cannot be made from forfeitures > Must be 100% vested © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile:

30 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Code Section 436 Impact  New method to correct failures to meet Code Section 436 requirement > Payment of benefits that fails to satisfy Code Sections 436(b), 436(c), or 436(e) > Make a contribution to the plan, adjusted for interest up to the date contributed > Contribution equal to amounts under Code Sections 436(b)(2), 436(c)(2), and 436(e)(2) as applicable  Such contributions treated as “section 436 contributions” separate from a minimum required contribution under Code Section 430 and are disregarded for determining prefunding balance © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile:

31 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Code Section 436 Impact cont.  Corrective distribution or corrective amendment is not subject to Code Section 436 requirements  But, if a plan is subject to a Code Section 436 restriction at the time of the correction, the Plan Sponsor must make a contribution to the plan > If it is lump sum or other prohibited payment, then contribute the amount of the corrective distribution (in certain cases, only half) > If it is a corrective amendment, then contribute an amount equal to the increase in the funding target of the plan attributable to the amendment © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile:

32 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Code Section 436 Impact cont.  Other sections of EPCRS revised to reflect the restrictions of Code Section 436 > Failure to timely pay minimum required distributions (“MRDs”), correction is to distribute the MRDs plus interest. If the plan is subject to a restriction on single-sum payments under Code Section 436(d), the employer must contribute the applicable amount discussed above > Failure to obtain spousal consent, The spouse may elect a single-sum payment, and if does so, the employer must contribute applicable amount discussed above © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile:

33 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: When is a DLA required?  Revised provisions to make it more clear  DLA not permitted for > Correction by adoption of IRS model amendment > Correction by adoption of prototype or volume submitter plan with an opinion or advisory letter > Demographic failure > Failure to timely adopt good faith amendments, interim amendments, or amendments to implement optional law changes before expiration of remedial amendment period © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile:

34 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: When is a DLA required? Cont.  If an operational failure is corrected by plan amendment permitted under SCP, the plan sponsor must submit a DLA, including the corrective amendment, during plan’s next on-cycle year, or termination if earlier  If an operational failure is corrected by plan amendment submitted to VCP or Audit CAP during an on-cycle year, or year of termination, a DLA is required  Nonamender failures not excepted above require a DLA © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile:

35 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Correcting Failures Not Addressed in EPCRS  What do you do when you come across a failure not addressed in EPCRS?!  Helpful Hints > On a regular basis (at least annually), employers should review procedures and documentation to determine if they have any qualification failures > If you discover an issue, you should correct it as soon as possible Use SCP (self correction) if available > If you need to file a VCP Submission, consider filing it on an anonymous basis Drawback: No audit protection while application is pending > Throw in the kitchen sink if a VCP application is to be filed

36 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Future Expansions to EPCRS  Potential future expansions to the EPCRS > Corrections for failure to implement automatic enrollment and/or automatic escalation in a Code Section 401(k) or 403(b) plan (including safe harbor plans) > Corrections for failing to timely provide a safe harbor notice > Corrections of issues relating to designated Roth contributions

37 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Contact  Ronald J. Triche  Jennifer Dack Brooks Trucker  Huss, APC One Embarcadero Center, 12 th Floor San Francisco, CA (415)

38 © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: © Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Francisco, California Telephone: | Facsimile: Disclaimer  These materials have been prepared by Trucker  Huss, APC for informational purposes only and constitute neither legal nor tax advice  Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship  Anyone viewing this presentation should not act upon this information without seeking professional counsel  In response to new IRS rules of practice, we hereby inform you that any federal tax advice contained in this writing, unless specifically stated otherwise, is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding tax-related penalties or (2) promoting, marketing or recommending to another party any tax-related transaction(s) or matter(s) addressed herein


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