R e s Ip s a L o q u i t o r
EPCRS CORRECTION
makeover
PROCEDURE FOR AUTO
DEFERRALS GETS A
By Marcia S. Wagner, Esq.
P
lan sponsors must operate their plans in compliance with notoriously
complex rules set forth in the Internal Revenue Code, none more
so than those relating to automatic contribution and automatic
escalation features in 401(k) plans. If an error is not corrected, it
can jeopardize the plan’s tax-qualified status leading to costly tax
consequences. Moreover, the IRS is not the only actor searching
for such operational failures; the plaintiffs’ bar looking for reasons
to sue the plan sponsor or aggressive bankruptcy trustees seeking
to prove plan noncompliance in order to include plan assets in a bankrupt participant’s
bankruptcy estate are hunting for mistakes.
The IRS’s Employee Plans Compliance Resolution System (EPCRS) is a tool for
correcting operational errors, but until the recent issuance of enhancements, has been
viewed as too costly to fix failures to implement automatic contribution features. This,
in turn, has discouraged sponsors from adopting such features. In order to remove
this impediment, the IRS recently issued Revenue Procedure 2015-28, which amends
EPCRS so that implementation errors with respect to deferrals can be fixed more
easily. The relaxed procedure applies to 401(k) and 403(b) plans that have failed to
effectuate automatic contributions or affirmative deferral elections by a participant,
as well as the failure to carry out automatic escalation of the rate of deferral where
called for by the plan. The new procedure also applies where an employee was
improperly excluded from the plan by denying him or her the opportunity to make an
affirmative election.
6 | Summer 2015