What is the Employee Plan Compliance Resolution System (EPCRS)?

The Internal Revenue Service maintains the Employee Plans Compliance Resolution System (EPCRS) to provide plan sponsors with the opportunity and ability to self-correct most instances of noncompliance in a specified way. The prescribed corrective action will most often place affected participants in the position they would have been in had the error not occurred. The EPCRS supports three foundational programs:

Self-Correction Program (SCP): The SCP is used to correct insignificant operational problems at any time. For qualified plans with favorable determination letters and 403(b) plans, even significant operational problems generally may also be corrected within two years of the problem year. The SCP requires no application, and no fee is required to use it. Relief under the SCP is available for operational failures such as failing to follow your plan's terms, certain plan document problems, and participant loan issues.

Voluntary Correction Program (VCP): The VCP is used to correct Qualification Failures (i.e., any failure to comply with Code section 401(a) or 403(a)/(b)) prior to the plan being selected for an IRS examination. The IRS requires an extensive application that identifies the error or errors, offers a proposed correction for the error as well as administrative changes to ensure the error does not happen again. Following a response and approval of the correction method from the IRS the plan sponsor must make the corrections within 150 days. Plan sponsors must pay a fee determined per instance with reference to variables such as the number of participants, the type of error being corrected, the type of plan that is being corrected, etc. The IRS's VCP fee can be as little as $375 or as much as $25,000.

Audit Closing Agreement Program (Audit CAP): The Audit CAP is used in conjunction with an IRS examination. The corrective action prescribed will depend on the error(s) discovered during the examination. The corrections are made prior to closing the audit, and a sanction negotiated with the IRS must be paid. The sanction is based on the extent and severity of the plan failures.

The IRS provides extensive information on the types of failures that qualify for the different correction procedures at https://www.irs.gov/retirement-plans/epcrs-overview. This site provides links to information on correction procedures for specific plan types (i.e., 401(k), 403(b), SEP, etc.).

We have an FAQ resource that addresses the EPCRS information plan sponsors need and want to know. It covers:

  • What is the Employee Plan Compliance Resolution System (EPCRS)?
  • Does EPCRS apply to corrections of ERISA compliance issues?
  • Should a plan sponsor document the error and the corrective action taken under the Self-Correction Program (SCP)?
  • If it is necessary to use the Voluntary Correction Program (VCP) to correct a qualification failure, should the plan sponsor engage counsel to assist with the VCP process?
  • A plan sponsor has found an error affecting their retirement plan. What should the plan sponsor do next?

If you're interested in reading the FAQ or downloading a copy of the PDF, click here.

Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.   Investments involve risk and, unless otherwise stated, are not guaranteed.  Multnomah Group does not provide legal or tax advice. Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.

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