Legal Alerts

IRS Updates Retirement Plan Correction Program

04.21.15

The Internal Revenue Service recently issued two updates to its correction program for retirement plans (known as the Employee Plans Compliance Resolution System). The updates are designed to ease some burdens on employers discovering potentially costly errors in plan operation.

In the first update, Revenue Procedure 2015-27, the IRS reduced the costs associated with correcting plan loan errors. In addition, the guidance provides that plans discovering they have accidentally overpaid benefits do not always have to ask for the money back from retirees before taking other steps to make the plan whole.

Just days later, Revenue Procedure 2015-28 was released. That guidance contained a significant change in the correction for a failure to automatically enroll a participant in plans that have implemented an automatic enrollment feature. Before the new rules, employers that failed to automatically enroll a participant would have to make a 50 percent corrective contribution to the plan on behalf of the employee, resulting in a "windfall" for participants who were possibly unaware that they were supposed to be automatically enrolled. Under the new rules, the employer need not make a contribution for missed elective deferrals if the error does not extend beyond the end of the 9½ months after the end of the plan year of the failure and satisfies specific conditions listed in the revenue procedure. The new rules also create a rolling correction period for elective deferral errors lasting three months or less in which a corrective contribution is no longer required.

The IRS hopes the new corrections regarding automatic enrollment and automatic escalation will encourage more employers to adopt those features for their plans.

For further information about these recent updates or retirement plan corrections in general, please contact any of the members of the Lindquist & Vennum Employee Benefits Group.

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