This month, the Internal Revenue Service announced changes to the user fee structure for most voluntary correction program (VCP) submissions under its Employee Plans Compliance Resolution System (EPCRS). Previously, such fees were determined by the number of a plan’s participants and were limited to $15,000, with the availability of reduced fees for certain streamlined filings.
Effective for submissions made on or after Jan. 2, 2018, however, VCP submission fees are determined by net plan assets and are limited to $3,500, though reduced fees for streamlined filings are no longer available.
Three programs comprise EPCRS:
- Self-Correction Program (SCP)
SCP is a means of correcting a retirement plan’s operational failures without involving the IRS. To use SCP, an employer must correct the failure in a prescribed manner and then document the correction in a detailed memorandum. Failures that can be corrected by SCP are divided into “insignificant” failures, which can be corrected at any time, and “significant” failures, which must be corrected within a certain time period, generally by the last day of the second plan year following the plan year in which the failure occurred.
- Voluntary Correction Program (VCP)
VCP requires filing an application and paying a fee to seek IRS approval of the correction. The advantage of VCP is that it can be used to correct a broader range of failures than SCP, including plan document problems and “significant” failures not corrected within SCP’s required time period.
- Audit Closing Agreement Program (Audit CAP)
Unlike SCP and VCP, Audit CAP is initiated by the IRS and applies to plans under examination. Audit CAP involves taking IRS-approved corrective actions, paying a negotiated penalty and entering a closing agreement with the IRS.
Regardless of which program applies, EPCRS generally requires full correction of the failure, meaning the impacted participants and the plan must be made whole.
Changes to VCP Fee Structure
Historically, “compliance” fees for VCP applications were set forth in a schedule contained in the then-current revenue procedure setting forth EPCRS. In 2016, however, EPCRS was modified to provide that applicable fees, which became known as “user” fees, would instead be determined in the IRS’s annual revenue procedure addressing other employee plan fees. Generally, such fees were determined by the number of a plan’s participants and were limited to $15,000, with the availability of reduced fees for certain streamlined filings. This was changed in this year’s guidance — Revenue Procedure 2018-4.
- Reduced and Simplified Fee Schedule
Effective for regular and anonymous VCP submissions made on or after Jan. 2, 2018, user fees are determined by a plan’s net assets and according to the following new schedule:
|Plans with assets of
|Pay a fee of
|$500,000 or less
|Over $500,000 to $10 million
|Over $10 million
The new schedule reduces and simplifies the fee schedule associated with previous VCP filings, which was based on six categories of participant levels and capped at $15,000. The new schedule will not apply to group filings, or filings for certain orphan and 457(b) plans. Generally, net plan assets are based on the end-of-year net assets of a plan as reported on its most recently filed Form 5500 series return.
- Elimination of Reduced Fees for Certain Streamlined Filings
Previously, reduced user fees were available for certain streamlined filings, such as submissions for minor failures involving the plan loan and minimum required distribution requirements of the Internal Revenue Code. Going forward, reduced fees for such filings are no longer available.
Next Steps for Plan Sponsors
Plan sponsors considering whether to submit an application under the VCP will need to factor in the changes in fees discussed above. In announcing the changes, the IRS confirmed it will not (i) apply the new fee structure to submissions made prior to Jan. 2, 2018, or (ii) issue refunds for submissions made before Jan. 2, 2018, that are withdrawn and then resubmitted.
The IRS is in the process of revising its user fee submittal form — Form 8951, Compliance Fee for Application for Voluntary Correction Program (VCP). Until a revised form is issued, plan sponsors are advised to (i) continue using the September 2016 version of Form 8951; (ii) ignore the information on the form suggesting VCP fees are determined by the number of plan participants; and (iii) not check boxes on Lines 8(a) through 8(c) because they no longer apply.