Anonymous Now: The IRS' Anonymous Review Process
Our Spring 2023 article mentioned that if you are responsible for administering your employer’s 401(k) plan, mistakes will happen that cause plan failure. The good news is that you may use the IRS Employee Plans Compliance Resolution System (EPCRS) to fix mistakes, as long as the correction is reasonable and appropriate. It resembles one of the described EPCRS correction methods. EPCRS is an excellent tool for fixing common plan errors, but what do you do if you encounter a failure that can’t be fixed using the described EPCRS correction method, or if you want to use a different correct method? Do you need to come forward to the IRS with your hat in hand, confessing your sins, in order for the IRS to issue a favorable compliance statement? Well, yes, but what if the error is so significant that if the IRS says no to your proposed correction method, it could financially bankrupt the plan sponsor? Or what if the error appears so significant and complex that it’s impossible to fix—so that the only possible course of action appears to be plan disqualification? You might first consider approaching the IRS anonymously. This anonymous option allows the plan administrator to “flush out” potential correction methods with the IRS while maintaining the plan sponsor’s ability to walk away anonymously. While the IRS has done away with the old anonymous VCP filing process, you can nonetheless use the anonymous pre-submission conference process.
THE OLD ANONYMOUS VCP SUBMISSION PROCESS
On Dec. 31, 2021, the IRS phased out the anonymous Voluntary Correction Program (VCP) submission program. That former program allowed plan administrators to submit VCP submissions that involved alternative ways to correct plan errors under EPCRS without revealing the identity of the plan sponsor. This allowed plan sponsors to negotiate the correction with the IRS. If the IRS agreed with the correction method, you could come forward, reveal the identity of the plan sponsor and request a favorable compliance statement. And, if you did not come to an agreement with the IRS, you could walk away while still maintaining the plan sponsor’s anonymity—albeit without a compliance statement. This option gave plan administrators much flexibility but was replaced with the VCP pre- submission conference process.
THE CURRENT VCP PRE- SUBMISSION CONFERENCE PROCESS3
Effective Jan. 1, 2022, prior to submitting a VCP application, a representative of a plan sponsor may request an anonymous VCP pre-submission conference regarding corrective actions with respect to any failure that is eligible to be submitted under VCP.
A VCP pre-submission conference may be requested only:
1. For matters on which a compliance statement may be issued.
2. With respect to requested correction methods that are not described as safe harbor correction methods.
3. If the plan sponsor is eligible and intends to submit an application under VCP.
VCP pre-submission conferences are held only at the discretion of the IRS and as time permits.
The plan sponsor’s representative must submit the VCP pre-submission conference request via the pay.gov website by submitting Form 8950, Application for Voluntary Correction Program (VCP) Submission under EPCRS. The request should also include the following:
4. A description of the failure(s), including how and why the failure(s) occurred.
5. A description of the proposed method(s) of correction.
6. A description of all relevant facts, including the type of affected participants (for example, highly compensated employees or non-highly compensated employees).
7. Plan provisions and amendments that are relevant to the request.
8. Any other information IRS would need to evaluate the request.
At the conference, IRS will provide the representative of the plan sponsor with oral feedback regarding the failure(s) and proposed correction method(s) described in the request. However, any discussion of substantive issues at the conference is advisory only, is not binding and cannot be relied upon as a basis for obtaining relief under EPCRS. After the conference, IRS will provide written confirmation that the conference took place, and the matter will be closed. If the plan sponsor subsequently files a VCP submission regarding the issues discussed, the plan sponsor must follow the procedures for a VCP submission.
The new pre-submission conference
is relatively new, but we have found
it extremely helpful so far because
it allows you to explore alternative correction methods with the IRS without committing the plan sponsor to one specific correction method. This is particularly helpful when the described EPCRS correction method would otherwise certainly result in a significant financial outlay for the plan sponsor. Simply having the opportunity to hear the IRS provide feedback and/or offer “outside the box” alternatives can be very helpful.
Navigating this process can be challenging, so we recommend you work closely with your consultants and advisors or contact us if you have any questions.
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