Employee Plans Compliance Resolution System Changes

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Note - Any federal tax advice contained in this transcript is intended to apply to the specific situation described and should not be considered official guidance independent of the presentation. The tax advice and statements contained herein should not be relied upon for retirement planning purposes without first consulting a tax or retirement planning professional. This transcript has been edited for technical accuracy and may differ slightly from the audio recording of the Employee Plans Compliance Resolution System Changes phone forum.   This information is current as of February 21, 2013. Since changes may have occurred, no guarantees are made concerning the technical accuracy after that date.

Mark:   Hi, Everyone!  I'm Mark O'Donnell, Director of IRS Employee Plans Customer Education and Outreach. Welcome to our Employee Plans Compliance Resolution System Changes phone forum. Thanks for joining us today.

We'll be hearing from Janet Mak, Manager of EP Voluntary Compliance, and Paul Hogan, EP Voluntary Compliance Program Coordinator.  Before we start, I'd like to point out a couple of things. If you've registered for this program and you attend the entire live forum you will receive a certificate of completion by email in about a week. Enrolled agents, enrolled retirement plan agents, and enrolled actuaries are entitled to continuing education credit for this session. Other types of tax professionals should consult their licensing organization to see if today's session qualifies for continuing education credit. As with all our presentations, the comments expressed by our speakers should not be construed as formal guidance from the IRS.

We have an array of retirement plan resources available for you. For more information regarding our EPCRS program, please visit our retirement plans website at www.irs.gov/retirement. You can also get there by going to the main IRS.gov landing page and clicking on the information forward drop down box on the upper right-hand side of the screen and select retirement plans. When you get there, look to the left-hand navigation bar and select correcting plan errors.

While you're visiting our website, you might also want to subscribe to our free electronic newsletters. To subscribe, select the "Subscriptions" drop down box from the top of the screen and choose "more" and then select "Retirement News for Employers" for newsletter that's directed at employers sponsoring retirement plans and "Employee Plans News for retirement plan professionals.

Now let's hear from Janet Mak and Paul Hogan.

Janet:  Good morning, everyone. Welcome to today's phone forum on the latest updates to EPCRS through Revenue Procedure 2013-12. The substance of our program remains essentially the same. The goal of EPCRS is to enable plans to correct failures and to preserve the tax favored status of their plans under 401(a), 403(b), 408(k), or 408(p); 408(k) deals with SEP/SARSEP plans and 408(p) deals with SIMPLE IRA plans. There are, however, some updates in the new Rev. Proc. 2013-12. As Mark had mentioned for additional information please visit us at www.irs.gov and on the home page type in the search box correcting plan errors. There you will find some very good resources such as the text of the two revenue procedures, 2008-50 and 2013-12, as well as summary changes between the two rev. procs. and the topical index for the new rev proc, voluntary correction program on fill-in forms, submission kits, and fix-it guides.

We are on slide four. The objectives for today's session is to give you an overview of the key changes to the new revenue procedures. We will go over the new forms that are required for each VC submission. We will also review the model compliance statement as well as new appendices, discuss updates made to EPCRS definitions and correction principles impacting 403(b) plans, and we'll also review other important modifications to EPCRS. Revenue Procedure 2013-12 becomes mandatory for all submissions made on or after April 1, 2013. Until then, employers have a choice. They can either come in under a new Rev Proc or continue to use Rev Proc 2008-50. The only caveat is that if you use the Rev Proc 2013-12 all of the requirements under that procedure must be followed and that also applies to submissions under Revenue Procedure 2008-50. You cannot submit a submission that cherry picks between the two revenue procedures.

We are on slide six. Submissions under the new Rev Proc must include two new required forms. Form 8950 entitled Application for Voluntary Correction Program and Form 8951 entitled Compliance Fee for Application for Voluntary Correction program. The submissions will be screened for completeness in Cincinnati. The screener will also review the Form 8950 to try to identify any missing items. If there are any missing items, the screener will request them prior to assigning the case to an EP Voluntary Compliance group. Just keep in mind that the screener may overlook some of the items that are required, so you may determine that there are additional items that are needed. If that is the case, I would recommend that you try to locate where the case might be or you may just wait until a VC specialist is assigned the case and then directly makes contact with you.

Slide seven. Form 8950 will now be our source document for items that we previously collected as attachments to a VCP submission. Those items include the penalty of perjury statement, the Abusive Tax Avoidance Transaction (ATAT) statement, a statement that the plan sponsor or plan is not under examination, and whether there is a determination letter request pending or was withdrawn or closed because of a failure to respond for requests for additional information, and it also captures items that were previously requested on Appendix C, VCP Checklist for Revenue Procedure 2008-50.

Form 8950 is a six-page form. The first three pages include 12 items that must be completed as appropriate. The last three pages are a procedural requirements checklist. There a couple of things that you need to note about the checklist. The applicant is not required to complete the checklist. Since the applicant is not required to complete the checklist they don't have to include it with the VCP submission that is mailed to the IRS. Finally, you want to review the checklist as it points out that there are certain questions on the form that require attachments.

We're on slide nine. Form 8951 is basically our fee form. It helps applicants determine the appropriate fee for their submission. The form contains the general fee schedule and exceptions to that fee schedule outlining reduced fees and special fees such as fees for group submission. Form 8951 should be attached to Form 8950. Just keep in mind that the Form 8951 is very similar to the determination letter application fee Form 8717. If there are additional fees that must be collected, you will be required to submit another Form 8951, and you will be provided with additional instructions.

Slide 10. Under Rev Proc 2013-12, all submissions including anonymous group, multiple employer, and orphan plan submissions must include Forms8950 and Form 8951. To avoid delays, Form 8950 and Form 8951 needs to be properly completed. The Form 8951 must be signed by the owner or authorized employee of the plan's sponsor. Exceptions to that general rule are outlined on the second page of the instructions to the Form 8950 under who must sign. Those instructions explain who should sign in cases where the submission is an orphan plan, a group submission, multiple employer, or multi employer. In addition, the form must have an original signature.

For anonymous submissions, the form should not be signed. Instead, the authorized representative should attach a signed perjury statement. An example of that statement can be found in the instructions and in the revenue procedure.

We are on slide 11. The 8950 and 8951 and the instructions are only available on the Internet. You may not request these forms via the telephone number for the IRS. In the very beginning, there is the website where you can ascertain the forms 8950 and 8951 under correcting plan errors, click on a link to access forms 8950 and 8951.

We are on slide 12. New mailing address. All VCP submissions made pursuant to Revenue Procedure 2013-12 must be mailed to Covington, Kentucky. There are two mailing addresses, one for regular mailings and one for Express Mail or delivery service. VCP submissions under Revenue Procedure 2008-50 should continue to be mailed to Washington, D.C. Let me turn this over to Paul.

Paul:  Thanks, Janet. I'm going to be on slide 14, and we're going to start over the information relating to the changes that have been made to the appendices. One of the first things that you should note is that the appendices C, D, E, and F that were part of the old revenue procedure, 2008-50, are no longer available under the new EPCRS Revenue Procedure 2013-12. The appendices have been either completely revised or they no longer exist.

Going on to 15, slide 15. The new revenue procedure is broken up into two sections in terms of the model compliance statements. Part one contains a model compliance statement and part two contains model VCP submission schedules. These schedules are similar to the ones that were part of Revenue Procedure 2008-50 under Appendix F. They resolved certain limited, very specific qualification failures and contain standardized correction methods. These new schedules are designed to work with the model VCP compliance statement that is in Appendix C part one.

Going to slide 16. Some of you may be able to see a picture of the model compliance statement, but part one has replaced the old Appendix D and F that used to be part of Revenue Procedure 2008-50. This part one Appendix C compliance statement can be used for all VC submissions. It's not limited to any particular issues or anything, but it is not a required document. We encourage people to use it, but it is not a required document that must be submitted with a VCP submission. The model compliance statement in part one can be used and combined with any of the Appendix C part two schedules, one through nine, that are also part of the revenue procedure. One new item that this model compliance statement has that wasn't really present in the old revenue procedure related to a section where you have to input and include narrative relating to how the plan sponsor will locate participants who are owed additional benefits, how they're going to be located.

Going to slide 18. How did we change these? What are the really big changes with these appendices? As you have probably noticed already, the old Appendix C that was part of Revenue Procedure 2008-50 that used to be a required submission document in many cases has been completely eliminated. However, we did move some of those items that were on that appendix to the procedural requirements checklist that is on Form 8950. However, I just want to point out that we did more than just simply copy and paste the old appendices items onto the Form 8950. We completely rewrote these items and we strongly encourage people to review the procedural requirements checklist that's on the 8950 to ensure that whatever VCP submission that they're making to the Service  is complete. The procedural requirements checklist on the form really does describe exactly what we need to have a successful VCP submission. The Appendix D that was part of Revenue Procedure 2008-50 has been replaced with an acknowledgment letter under the new revenue procedure. There is no longer an Appendix E or F under the new revenue procedure.

Going to slide 19. The other big change is that the former Appendix F schedules, one through nine, have been revised and are now Appendix C schedules in part two, schedules one through nine. We did revise some of the narrative that's in those schedules and we also picked up a few typos and stuff that may have existed in the prior schedule, so they are, again, different than what was in Revenue Procedure 2008-50.

Going to slide 20. I just want to go over a couple of the major changes that we've made to some of the schedules in Appendix C part two. You'll notice a very significant change to the formatting in what we ask for in terms of Schedule one. Page one now includes specific instructions that detail when this schedule can be used to report the correction of a failure to timely adopt good faith/interim amendments and discretionary amendments required because of a change in tax law. We've tried to provide guidance to tax payers so that they know exactly when it is appropriate to use this schedule.

Going to page 21 on the slides. Page two now we've done away with the checkbox system that was a huge part of Schedule one. Instead, we now require taxpayers to list each specific statutory or regulatory requirement for which the plan was not timely amended. We cannot accept any general statements indicated that the plan was not timely amended for interim amendments associated with a particular law or cumulative list. You have to specify and specifically list each interim amendment not timely adopted.

Going to slide 22. We're going to be talking about the changes to Schedule two which is where you list what I call major late amendments involving major tax laws. These are not interim amendments or good faith amendments that were adopted late but were significant plan document failures relating to a failure to timely amend the plan to conform to various statutory changes. As you can see, from the new schedule, we've updated it to include all non-amender failures through the 2012 cumulative list. We've included the first round of plan document failures that are associated with preapproved DB and DC plans. We also added a plan document failure associated with a failure to timely adopt an amendment associated with a previously issued favorable determination letter. For 403(b) plans, we've added the failure to timely adopt the written 403(b) plan.

Then, the other significant changes that we made to these schedules involve Schedules three, four, and nine. The more significant change in those schedules was adding language regarding the method of locating former participants or beneficiaries so that it would coordinate with the new VCP model compliance statement. When you go into those schedules, you'll see that there's a box now that you have to include a narrative that explains how you're going to be locating lost participants or lost beneficiaries who may be owed additional monies from the plan.

We're on slide 24. I just want to point out, as Janet has mentioned, that we have interactive PDF versions of all of the documents that I've been talking about, so that includes the Appendix C part one, the model compliance statement, all nine schedules under Appendix C have been posted to the web as interactive PDF documents as well as including the Appendix D, the acknowledgment letter. All of these documents are interactive and they can be completed electronically, and then you can print them out at your desk while you're filling them out online. All of this is available at www.irs.gov/retirement and then there will be a link for correcting plan errors, and then a link for VCP fill-in forms. That's all I have for this section. Janet, do you want to talk about the 403(b) changes?

Janet:  Yes, but before I go to talking about 403(b) plans I realized I skipped slide 13. Let's go back to slide 13 to talk about assembling the VCP submission. Section 11.14 was revised to incorporate the use of the required Form 8950 and Form 8951. The Form 8950 removed a lot of the duplicative items that we previously requested under the Appendices D or F. We clarified that if the VCP submission and accompanying determination letter applications are submitted together that any documents required to be filed for the VCP submission and the determination letter you must submit duplicative items. If there's a VCP submission that identifies a late amender failure and you're submitting a plan document which corrects the failure and you also include a determination letter application you must now submit two copies of the plan document. It's also important that when you do have a VCP submission and a determination letter application that the VCP submission is on top, and then the determination application is on the bottom, and then those packages are mailed/submitted in the same envelope. That'll help us process those cases over in Covington, Kentucky.

Let's jump back to slide 25. 403(b) plans the major changes. There have been three significant pieces of guidance for 403(b) plans. The first being the final 403(b) regulations which generally requires adoption of a written plan intended to satisfactory the requirements of 403(b) by January 1, 2009. Then, notice 2009-3 for plans meeting certain conditions extends the deadline to adopt a written plan by December 31, 2009. Announcement 2009-89, the service expects to publish revenue procedure for obtaining an opinion letter for preapproved plans. In the future, a revenue procedure for obtaining determination letters for individually designed plans. These procedures will establish remedial amendment periods for plans to be updated for applicable laws.

A condition for taking advantage of the remedial amendment period provided in these procedures is that the written plan must have been adopted by December 31, 2009. Revenue Procedure 2013-12 now allows us to address any types of failures with respect to a failure to adopt a written plan and a failure to comply with the plan terms.

We are on slide 26. Section 5.02, modifies the definitions for 403(b) plans to mirror qualified plans. It added a definition of plan document failure. It revised the definition of operational demographic and employer eligibility failure to coordinate with a new definition of plan document failure. It also added definitions of overpayment and a favorable determination as it applies to 403(b) plans.

Section 6.10 was added to provide correction principles for 403(b) plans. The corrections follow the same principles as required for regular qualified plans, so you need to consider the specific items relating to 403(b) plans. This section takes that into account.

Slide 28. An illustration of correction principle unique to 403(b) plans can be found in the first bullet. It provides that certain failures can be corrected by treating a contract as a 403(c) annuity contract. What does that mean? Think of a 403(b) plan as the counterpart to a 401(a) plan. Contributions made on behalf of a participant are not taxable to the participant until the participant takes a taxable distribution from the plan. A 403(c) annuity contract is like a nonqualified plan. Contributions made on behalf on the participant are taxable to the employee as soon as the employee becomes vested in those contributions. If an individual receives an allocation that is in excess of a 415 limit, the excess allocation could be treated as if it were made to a 403(c) contract. The employer would pay the tax on the excess to the extent that the participant is vested in it, and then whereas the 415 excess does not impact the plan as a whole but only to the affected individual whose limit exceeded 415. In a 401(a) plan, any 401(a) violation would impact the qualified status as a whole. In a 403(b) plan, some failures affect all contracts in the plan, and then some failures only impact the individual.

This illustrates an alternative method for correcting 415 excess in contrast to a 401(a) plan where the correction would typically require distribution of excess employee contributions to the employees and forfeiture of excess employer contributions such as matching and employer discretionary contributions. The last two bullets are conditions for an employer to use SCP to correct 403(b) operational failures, a favorable determination letter for a 401(a) plan means an issued favorable opinion letter or a favorable determination letter. For 403(b) plans, the requirement is met by timely adopting a written plan document. Established practices and procedures as a requirement only applies for failures occurring after December 31, 2009. For pre December 31, 2009, there is no failure to comply with plan terms.

We are on slide 29. Failure to adopt written plan can only be fixed by filing a VCP submission and to adopt a written plan. Now once we review your submission and we issue a compliance statement that would enable the plan sponsor to be eligible to use self correction procedures to correct significant operational failures because we deem that the favorable letter requirement is met. It also affords the sponsor eligibility to use the extended remedial amendment period when the subsequent revenue procedure for prototype and the individually designed plans come out. Notwithstanding anything previously said, the failure to timely adopt a written 403(b) plan can also be fixed during an examination via an Audit Closing Agreement.

In cases where the only failure is the failure to adopt a written plan and the submission is sent to the IRS on or before December 31, 2013, the applicable compliance fee is 50% of the applicable general fee schedule, so you do get a reduced fee if this submission is filed before the end of this year.

We're on slide 31. Until the issuance of the Rev Proc 2013-12, we had to return applications that involved failures to follow plan terms. If we still have submissions that involved, a failure to comply with final 403(b) regulations and they were not closed and returned by December 31, 2012, that is December of last year, we could consider the submission under this new revenue procedure. In order to accomplish that, we need to do a couple of things. The VC specialist would contact the power of attorney or plan sponsor requesting that they write a letter to us indicating that they wish to use the new procedure. You may be required to revise the format of your submission, so if you had previously used Appendix D to submit your VCP submission, you would now be required to submit a new model compliance statement pursuant to Rev. Proc. 2013-12.

We're on slide 32. In order to be eligible for a self correction procedure, the plan sponsor administrator of a plan must have established practices and procedures whether they be formal or informal reasonably designed to promote and facilitate overall compliance with the applicable code sections. Prior to this Rev Proc 2013-12, in order to use self correction procedures the plan would have had to have practices and procedures in place to prevent 415 limits to have the two to be exceeded. There are certain situations where a plan had elect deferrals and nonelective contributions. The plan sponsor would make employer contributions without taking into account elective deferrals, and then correct the 415 failure by distributing from elective deferrals after the year has ended. The advantage is that the employer is then able to keep the larger share of the employer contribution, and then if the 415 limits are monitored then the excess would've been distributed and there would be no more failure.

We're on slide 33. The plan that provides, I'm sorry.

Paul:  Go ahead, Janet. I'm sorry.

Janet:   Ok. I'm going to turn this over to Paul.

Paul:  Thank you. I just want to go over some of the other important modifications. Janet just started to go over the changes that were made to section 4.04 in the new revenue procedure regarding SCP eligibility. Slides 33 and 34 go into a little bit more detail about the conditions and actions that are associated with this. This relaxation of the requirement that you have policies and procedures in place in order to be eligible for SCP applies to a limited number of retirement plans. It's basically plans that provide elected deferrals and non-elective employer contributions that are not matching contributions. The excess annual additions are regularly corrected by returning the excess annual additions from the elected deferral account to the affected employee within two and half months after the end of the plan year. Those are the two general conditions that you're going to need to have in order to apply this new relaxation to the requirement that you have policies and procedures in place in order to be eligible for SCP.

Like I said, if all the conditions are met then this new rule provides a fairly generous benefit to plan sponsors who generally provide a high level of non-elective employer contributions to their plans where they also allow elective deferrals as well.

We're on slide 35 now.  The other change that's been here is we've opened up the door slightly to where we may, outside of EPCRS, accept submissions involving 457(b) plans that are sponsored by tax exempt organizations. Under Revenue Procedure 2008-50, none of these types of retirement plans were eligible if sponsored by a tax exempt organization. Whether it was under EPCRS or even outside of EPCRS, the Service (IRS) was not willing to accept any voluntary submissions regarding these types of plans. Even under Revenue Procedure 2013-12, the general rule is that the availability of correction for 457(b) plans is generally limited to governmental entities that sponsor a 457(b) plan. However, under the new revenue procedure we will consider a submission of a 457(b) plan sponsored by a tax exempt organization if, for instance, the plan was erroneously established to benefit the plan sponsor's nonhighly compensated employees and the plan has been operated in a manner that is similar to a qualified plan. Because as most of you should know, a 457(b) plan that's sponsored by tax exempt organization is usually only established for the benefit of its owners or highly paid employees or officers.

Going to slide 36. There are some changes here relating to the funding of QNECS. We simply have clarified in the new revenue procedure that if you're fixing a failed ADP test by using QNECS that we're reminding people that the QNECS that you use to fund the correction of these failures must satisfy the definition in the regulations under 1.401(k)-6. Basically, this regulation provides that a QNEC cannot be funded with forfeitures.

Going to slide 37. We've made some changes to section 6.02 involving DB overpayments. We basically say that if you have an operational failure where there were delays in payment that the amount that needs to be paid to the affected participants needs to be increased in accordance with the plan's provision for actuarial equivalents that were in effect at the time that the distribution was made because the participant obviously experienced a period of time where this money was not paid to them, and so the amount that they are owed should be increased as a result of that failure to timely provide that benefit.

Corrective distributions that are not subject to the requirement. Corrective distributions that are made to fix an operational failure are not subject to 417(e)(3). If these payments were made to make up for missed payments for a benefit that was originally not subject to 417(e)(3). An example of that might be where someone who was receiving single sum annuity payments was underpaid for some reason or the payments didn't start timely and the plan needs to make a catch-up distribution to that participant, that payment would not be subject to the 417(e)(3) restrictions.

Then, going to side 38. We've added some basic correction principles to deal with failures involving 436. We've added a new subsection in 6.02(4)(e) to reflect the possibility that a plan that has certain failures may be subject to restrictions under 436 and they have to take them into account, and then also how to deal with a plan's failure to comply with the 436 restrictions in operation. Basically, the basic correction principles says that you may need to make corrective contributions to pay for corrective distributions or corrective amendments if the plan is subject to restrictions at the time of correction.

Going to slide 39. Another significant change was in how we revised the methodology for finding lost participants. Basically, this acknowledges the fact that the IRS letter forwarding program is no longer available as of, I believe, August 31, 2012. We specified some methods that may be used to find lost participants. For instance, the use of a non-IRS letter forwarding program, a commercial locator service, credit reporting agency, or certain Internet search tools that may be available. Just like under Revenue Procedure 2008-50, we say that a plan will not be considered to have failed to correct due to the inability to find an individual if the plan has taken reasonable actions to locate that individual in accordance with this section. Of course, if the individual is located later, the additional benefits would have to be provided.

Going to slide 40. Section 6.03 was just clarified to remind people that the correction methodology in that section is available under Audit CAP as well as VCP. In section 6.04(c), we just put something in there to remind people that if you're going to take advantage of the corrective contributions that are discussed in that section and it involved the DB plan that may be subject to restriction under 436, the plan sponsor may have to make a contribution to the plan in order to fund that correction.

Going to slide 41. There were a lot of changes made to section 6.05. This is the section that discusses when a determination letter application is required to be included with the VCP submission. This slide basically tries to tell you when you shouldn't include an application. Because as most of you know, the general rule is that you do need to include a determination letter application  if you're resolving failures by plan amendment, but 6.05 does list some very specific instances in which you will not be submitting a determination letter application with a VCP submission under these circumstances at any time. The first one is if you're using model amendment or if IRS approved plans are used to fix any type of qualification failure. If we've (IRS) already issued an opinion letter on that particular language, we don't need to see a determination letter application. If you're correcting a demographic failure through some sort of retroactive amendment, under no circumstances are you to include a determination letter application with the VCP. If the failures in the submission are limited to late good faith amendments, late interim amendments, or optional tax law changes, again, as we define these terms in the revenue procedure you are not required to include a determination letter application. Operational failures corrected by plan amendment by off cycle plan sponsors will need to submit a determination letter on their next on cycle year. Generally, this rule applies to individually designed plans. Then, finally, if the failure in the submission relates to a failure to adopt amendments required under the terms of a previously issued determination letter we don't need a determination letter application with the VCP to correct that type of failure.

Going to slide 42. We clarified and tried to more clearly define what is meant by the term good faith amendment, interim amendments, and optional law changes. Basically, you just to be sure because sometimes you may have these issues but they may ripen into something that is not one of those failures. Then, finally, 6.05 (3)(c) clarified the scope and the limitations of the compliance statement or closing agreement.

Going to slide 43. We also tried to address corrective amendments that might be made to preapproved plan, and there are some circumstances where a corrective amendment that might otherwise throw a preapproved plan into an individually designed status can be avoided if these circumstances can be met. The corrective amendment would otherwise be permitted under the rules for preapproved plans and there were no other modifications have been made to the plan that would cause it to lose its reliance on the opinion of advisory letter. If these conditions are met, the plan sponsor will be allowed to continue to rely on the plan's opinion or advisory letter. Obviously, this is all associated with a VCP submission.

Then, finally, slide 44. Section 6.06(3) was revised to clearly address the correction of overpayments made from defined benefit plans, we basically refer people to Appendix B and to refer to the return of overpayment and adjustment of future payment correction methods. We've made it a little shorter in terms of the basic part of the Rev Proc, but you need to look to the Appendix B for the specific methodology. Basically, it hasn't changed. To fix defined benefit plan Overpayments generally you have to try and collect the money from the plan participant, and then if that doesn't work out the plan sponsor is responsible for putting a corrective contribution to be repaid to the plan in order to restore the money that the plan paid out erroneously to where it would be if the overpayment had not been made.

Going to slide 45. We added a new section 6.06(4)that deals with Overpayments from defined contribution plans. We also made a clarification that if a corrective employer contribution is not going to be needed if the overpayment was associated with a premature distribution.

Going to slide 46. Section 6.07 was revised to clarify, that it also applies to Audit CAP. This is a section which deals with participant loans and the possibility of getting relief from the deemed distribution rules in certain situations. It used to be a VCP only requirement, but we've clarified that such relief could be part of an Audit CAP if that was something that was desired by both the IRS and the plan sponsor.

Section 10.08 was revised to coordinate with the new Appendix C. Section 10.10 and 11.08 that deal with an anonymous submission procedures to indicate that the person who submits the VCP submission must be a practicing individual who satisfies the power of attorney requirements and that they provide a penalty of perjury statement with their submission to that effect.

Then, there were some modifications in 10.11 involving in terms of how you calculate the compliance fee for a Group VCP submission. Basically, it's based on the number of Basic prototype plan documents, not adoption agreements.

Finally, 10.12 also was revised. This is for calculating the fee if a VCP submission or Audit CAP involves a multiple employee plan or multi employee plan. The fee or sanction may be based on the number of participants rather than assets in some cases.

Section 11.04 was revised to indicate that if you're submitting a restated document as evidence of correction that you must identify the corrective language in the restated plan that fixes the disclosed failures. Basically, if you're telling us that you're fixing a bunch of interim amendment failures and there're restated plan documents being submitted as evidence of that you need to explain where in that restated plan the corrective language is.

Section 11.05 now requires that you include a photocopy of the check for the compliance fee to be included with the submission in addition to the original check.

Finally, section 12.01 just provides a formal notice to plan sponsors that your compliance fee check may be converted into an electronic fund transfer. Now I'm going to turn it over to Janet so she can talk about VCP fees.

Janet:  We are on slide 49. Section 12.03(3) now provides a flat $500 compliance fee. This is something that we've already incorporated and we've already applied with a number of our submissions where the sole failure is the failure to adopt a proposed amendment for which a past favorable determination letter is conditioned. In order to qualify for this flat $500 fee, the amendment must be adopted or have been adopted within three months of the expiration of the remedial amended period for adopting the amendment.

Slide 50. Section 12.04 was added to provide a fee rule for VCP submissions with multiple failures that are entitled to reduced fees. Under this rule, the fee for the submission is the lesser of: the sum of the reduced fees or the compliance fee under the general compliance fee schedule. Section 12.08 provides guidance on establishing the number of plan participants for purposes of determining what the compliance fee should be for those plan sponsors who are not required to file a Form 5500 series return.

Slide 51 is the revised fee schedule associated with the determination letter applications under the closing agreement procedure. These fees are updated to include the second cycle in this subset of missed second cycle. Section 14.04(3) and (4) were added to provide reduced fee amounts for certain nonamender failures, discovered during the determination letter application process not related to VCP submission. If your sole failure consists of a failure to timely adopt good faith amendments, interim amendments, or amendments required to reflect the change to operation of the plan as defined in section 6.05(3), then the appropriate fee is 40% of the applicable fee under the employer's second remedial amendment cycle on the chart. That's in section 14.04(1).

Slide 53. Section 14.04(4) provides for a flat $1,000 fee if the sole failure discovered is the failure to adopt an amendment that a favorable determination letter was conditioned. If you had filed a VC submission, then your fee would've been a flat $500, but if we discover the failure during the review of the determination letter application review you would pay double. The required amendment is or was adopted within the three months of expiration of the remedial amendment period, so in order to qualify for that fee we still use the same requirement that we would determine the fee based on when that required amendment was adopted. If it was adopted within the three months of the expiration of the remedial amendment period, then you would qualify for this reduced flat fee.

Modifications to Appendix A. Section .01 now states that the correction methods in Appendices A and B are deemed to be reasonable and appropriate correction methods for a failure. Basically, they are our safe harbor methods. Now bear in mind that even though the failures could be corrected using the correction methods in appendices A & B, they are safe harbors it does not mean or preclude that there might be an alternative correction method. As long as you follow these correction methods under Appendices A or B these are our safe harbors and can be used to correct under SCP, VCP and Audit CAP  procedures. If you are considering other alternative proposed correction methods, then we would strongly recommend that you file a VCP submission. In addition, this section provides that there may be more than one appropriate method of correction for a failure, but that any alternative correction method must satisfy the correction principles in section 6.02.

We're on slide 55. Appendix A section .05 and related examples in Appendix B were revised to generally provide that matching contribution owed to a participant may be made in the form of a corrective employer matching contribution instead of a QNEC. Unlike a QNEC where those contributions must be 100% vested, corrective employer matching contributions are subject to the plan's vesting schedule that applies to employer matching contributions.

We're on slide 56. Appendix A section .05(2)(b) was revised and expanded to add safe harbor corrections relating to the improper exclusion of employees from safe harbor 401(k) plans and a 401(k)(12) and 401(k)(13). Missed deferral amounts assumed to be equal to 3% of compensation and it may be higher if the plan provides matching contributions on deferrals above 3%. If you're providing matching contributions up to 5% of an employee's deferral, then in order to utilize the safe harbor the missed deferral correction contribution must be 5% of compensation in that example. Under this correction method, we do not require that the employee rerun its ADP or ACP testing because these are a safe harbor correction methods.

Slide 57. Appendix A section .05(6) was added to provide corrections relating to the improper exclusions of employees making elective deferrals to 403(b) plans, missed deferral amounts assumed to e equal to 3% of comp. It may be higher if the matching contributions on the deferrals is in excess of 3%. These are very similar correction methods, the 403(b) and 401(k) plans. Again, no ADP or ACP testing is allowed under the safe harbor correction method.

Other modifications. Section .05(7) was added to provide corrections relating to the improper exclusion of employees for making elective deferrals to simple IRA plans. This deferral amount assumed to be equal to 3% of comp. Again, no ADP or ACP testing is allowed.

Paul:  Janet, before we leave this slide, I just want to point out to the audience that this slide and the previous few involving safe harbor plans or any plan that doesn't require ADP or ACP testing, the purpose of these safe harbors was to come up with a simple method that doesn't involve testing at all because none of these plans are subject any sort of ADP or ACP testing because they are either by statute not required to do this type of testing or they're simply safe harbors and that's one of the benefits of having a safe harbor plan. Thank you.

Janet:  Thank you, Paul. Other modifications to Appendix A. Section .06 was revised to clarify that a correction involving the failure to timely pay a required minimum distribution and a define benefit plan is subject to restriction and is subject to a 436 restriction at the time of correction. The plan sponsor must make a contribution in order to make that distribution.

Appendix A section .07(2) was revised to clarify that a lump sum payment made to a spouse to correct a failure to obtain spousal consent and the plan is subject to a restriction on a lump sum payments under 436(d) at the time of correction. The lump sum payment could only be made if the plan sponsor makes a contribution to the plan. I think that as a general course if you do sponsor a defined benefit plan and your plan is under restriction that you do contact voluntary compliance to discuss appropriate correction method because this is very complicated.

Appendix B section 2.07(3) was revised to clarify that corrective plan amendments used to resolve the early inclusion of otherwise eligible employees in a define benefit plan must also consider the rules of section 436 if it is intended to increase benefits or to include additional employees when the plan is under a 436 restriction. Again, here is another example of plans that are restricted under 436, and at the time of correction the plan is still under restriction.

I believe that's the end of our PowerPoint. According to my clock, we have five minutes left and we did receive a number of questions in advance of this phone forum. We will attempt to answer them here, but I'm sure we're going to run out of time before we get through all of these questions. We do intend to contact you directly with a response to your individual questions. Let's begin.

We were asked to provide examples of a payment that was made from the plan to a participant or a beneficiary in the absence of a distributable event (but was otherwise determined to be accordance with the transitive plan, for example, an impermissible in service distribution. Would this cover, for instance, employer dollars that were inadvertently distributed when the plan allowed in service of employee dollars only? Yes, based on the facts that were presented, this would cover the possibility that employer dollars were distributed instead of employee dollars only. The other examples that we would include under this category would be ADP or ACP testing issues that resulted in excess distributions to the highly compensated employees and situations where a participant receives a cash out distribution from a plan even though they did not experience a termination of employment or of separation of service. Most plan documents are drafted only to allow for distributions upon termination of employment or retirement. Paul.

Paul:  Right, we have a couple questions involving the new change in section 4.04 involving the relaxation of the requirement that you have policies and procedures if you're attempting to fix a 415 failure. The first question involved basically asked is the two and half month period timing rule that specified in section 4.04, is that basically a hard rule or not? In other words, can they make those corrective distributions three months or four and a half months or six months after the end of the plan year and still be able to take advantage of this relaxation of the requirement for SCP purposes? The answer is no. It's a hard rule. If you want to take advantage of the new rule that's in section 4.04 the excess annual additions have to be identified promptly and they have to be distributed within two and half months.

The other question was does the new rule basically allow plans not to monitor during the year the 415 limits. Basically, if you qualify for the new rules and you're able to make prompt correction, then absolutely that is what you're allowed to do. You don't have to really check 415 until the end of the year, and then determine what the excess annual additions are and distribute the monies within two and a half months.

We received a couple of similar questions and someone asked how does this tie into the VCP fees that are discussed in section 12.07? It's really an apples and oranges type of question. If you have a situation that requires you to bring a case in through VCP we will analyze all of the facts and circumstances to determine whether or not those higher fees would be applicable. Because if you're following the procedures in 4.04 you'll never be coming in to VCP if you're following the requirements in section 4.04. Janet?

Speaker 1:       We have one minute to the top of the hour.

Janet:  Ok. This is going to be our last question. I'm sorry, we're run out of time. The question is, is there a specific correction for the inclusion of an ineligible employee for 401(k) deferrals where correction by plan amendment to include the employee is not desired? For example, only one employee was included incorrectly due to a payroll error and the plan sponsor would prefer to have the money forfeited or distributed and make the one individual hole, since the amount is so small, could the ineligible 401(k) deferral be treated as an excess amount? The correction for any contributions that were made to a 401K plan by an ineligible employee should be disgorged by the plan if they are 401K deferrals. In most cases, these are 401(k) deferrals that are either compensation or deferred by the participant. They cannot be forfeited back to the employer because this is the employee's money. In answer to the question, I would say that you could not treat this an "Excess Amount" as defined in Rev. Proc. 2013-12. The ineligible elective deferral amount should be distributed back to the employee and the employee would take that dollar amount back into his taxable income. That might require that this participant file a revised and amended Form 1040 to take into account the deferrals. I would not treat this as an Excess Amount.

I'm sorry we were not able to answer all these questions, but I do thank you for participating on this phone forum today. Should you have any questions, you have our contact information. Thank you.