Home>Financial Articles and Q&A>Articles>Employee Plans Compliance Resolution ...

Employee Plans Compliance Resolution System Updates


 

On April 2 2015, The IRS released Revenue Procedure 2015-28, updating the Employee Plans Compliance Resolution System (EPCRS) program to allow lower cost corrections to certain salary deferral retirement plans. The new guidance affects plans that fail to deduct contributions to electing employees or employees who were enrolled automatically under any form of automatic contribution arrangement (i.e., automatic enrollment) for a 401(k), or a 403(b) plan.

Plans with Automatic Enrollment or Automatic Escalation

If an employer fails to implement the automatic enrollment of any employee to the default contribution percentage, or to increase an employee’s existing contribution amount for plans that automatically escalate (increase) employee contributions, the employer no longer needs to fund a make-up contribution to replace the employee’s salary deferrals for the affected period, provided the following:

  • The failure is limited to the lesser of:
    • 9 ½ months after the end of the affected plan year in which the failure occurred, or
    • If notified by an affected employee, the first payroll period of the month, following the month the employer was notified of the error;
  • The employer provides a notice to the affected employee(s) no later than 45 days after the correct deferral contributions have been implemented;
  • 100% of the employer matching contribution is funded for the affected employee(s) for the missed contribution period; and
  • Missed earnings on the employer match must be restored.

The automatic enrollment correction rules have a sunset provision and are only effective for plans with respect to failures that begin on or before December 31, 2020. The IRS reserves the right to extend or make these rules permanent at their discretion.

Correction Relief for Plans without Automatic Enrollment or
Automatic Escalation

Under the new guidance, employers who forget to withhold contributions, after receiving an election to defer from a participant, are given some relief from the previous correction method if the correction is identified and corrected within a reasonable amount of time.

For 401(k) and 403(b) plans without automatic contribution features, the employer must replace 25% of the missed deferrals (previously 50%) and 100% of the employer match, if:

  • The employer corrects the missed deferrals no later than the end of the second plan year, following the year in which the deferrals are missed (i.e., deferrals missed in calendar plan year 2013 would need to be fixed by December 31, 2015);
  • The employer provides a notice to the affected employee(s) no later than 45 days after the correct deferral contributions have been implemented;
  • 100% of the employer matching contribution is funded for the affected employee(s) for the missed contribution period; and
  • Missed earnings on both the employee deferrals and the employer match must be restored.

Special Correction for all 401(k) and 403(b) Plans – Rolling
Three-Month Windows

The new rules also offer a reduced-cost correction option for all 401(k) and 403(b) plans. According to the new rule, an employer can avoid funding the employee deferrals for the affected period in which they were missed, provided that:

  • Corrected deferrals begin no later than the earlier of:
    • The first payment of compensation made on or after the three-month period that begins when the failure first occurred, or;
    • If the employer was notified of the failure by the affected employee, the first payment of compensation made on or after the last day of the month, following the month the employer was notified; and;
  • Notice of the failure is provided to the affected employee(s) no later than 45 days after the date the deferrals commence; and
  • 100% of the employer matching contribution is funded for the affected employee(s) for the missed contribution period; and
  • Missed earnings on the employer match must be restored.

These new rules provide employers a more reasonable alternative than the previously prescribed rules and show a willingness from the IRS to balance the integrity of the plan with the needs of the employer to maintain compliance.

Upvote (0)
Comment   |  4 years, 10 months ago from Houston, TX