IRS Issues Interim Guidance Under Expanded EPCRS

June 9, 2023

Recently, the IRS released Notice 2023-43, providing interim guidance on Section 305 of the SECURE 2.0 Act of 2022, which expanded the Employee Plans Compliance Resolution System (EPCRS), the system through which plan sponsors can correct certain errors in the form and operation of their tax-qualified retirement plans. EPCRS most recently was issued in Revenue Procedure 2021-30 (Rev. Proc. 2021-30). The guidance provides helpful clarity to employers and other plan sponsors interested in self-correcting certain compliance defects in their retirement plans without IRS approval.


EPCRS is the IRS system through which plan sponsors can correct errors in the form and operation of certain retirement plans intended to satisfy the requirements of Sections 401(a), 403(a), 403(b), 408(k) or 408(p) of the Internal Revenue Code of 1986. Unless corrected, such errors jeopardize a retirement plan’s favored tax status under the Code.

Currently, three programs comprise EPCRS.

  • Self-Correction Program (SCP) – SCP is a means of correcting a retirement plan’s operational and certain plan document failures without involving the IRS. To use SCP, a plan sponsor establishes compliance practices and procedures to self-correct the failure and then documents the process, thereby avoiding payment of any fee or sanction, provided specified conditions are satisfied. Correctible failures are divided into “insignificant” failures, which may be corrected at any time, and “significant failures,” which must be corrected within a specified period of time (and sometimes are not eligible for correction under SCP but must be submitted to the IRS for approval through a VCP, as defined below).
  • Voluntary Correction Program (VCP) – VCP requires filing an application (and paying a related fee) to seek IRS review and approval of the correction. The advantage of VCP is that it can be used to correct a broader range of failures than SCP, including certain additional plan document problems, “significant” failures not corrected within SCP’s required time period, and failures for which EPCRS does not provide a specific sample correction method. All VCP submissions must be made electronically.
  • Audit Closing Agreement Program (Audit CAP) – Unlike SCP and VCP, the IRS initiates Audit CAP, which 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, which means the impacted participants and the plan must be made whole, often by restoring the participant or the plan to the position it would have been in, had the failure not occurred.

SECURE 2.0 Expansion of SCP

SECURE 2.0 expanded SCP by increasing the opportunities for plan sponsors to self-correct certain compliance defects in their plans. Specifically, it permits plan sponsors to self-correct “eligible inadvertent failures” at any time and without regard to when the failure occurred or its significance. An “eligible inadvertent failure” is defined as any failure that occurred despite the existence of standards and practices currently required for self-correction under EPCRS guidance. 

While SECURE 2.0 took effect immediately, the IRS has two years to revise EPCRS for changes required by SECURE 2.0. However, without formal guidance surrounding the applicability of the SECURE 2.0 EPCRS expansion, it is unclear whether taxpayers could immediately use the expanded version of SCP or wait for formal IRS guidance. Notice 2023-43 provides interim guidance to assist taxpayers in advance of a reissued EPCRS in an updated Revenue Procedure.

Notice 2023-43 – Highlights of Significant Changes

In a question-and-answer format, the IRS provides interim guidance under the expanded SCP, including the following:

  • In general, plan sponsors may use SCP to correct an eligible inadvertent failure (including an eligible inadvertent failure relating to a loan from a plan to a participant), as defined in SECURE 2.0 before the IRS updates Rev. Proc. 2021-30, provided certain conditions are satisfied and an enumerated exception does not apply.
  • A plan sponsor may not self-correct certain inadvertent errors, including among other errors: the failure to initially adopt a written plan, a significant failure in a terminated plan, a demographic failure using a correction method other than a method set forth in Treas. Reg. § 1.401(a)(4)-11(g), an operational failure corrected by a prior plan amendment that disadvantages participants or beneficiaries, and a failure involving an orphan plan.
  • Certain provisions of Rev. Proc. 2021-30 related to self-correction do not apply regarding self-correction of an eligible inadvertent failure, including the requirement that a qualified plan or 403(b) plan obtain a favorable determination letter, the prohibition of self-correction of demographic failures and employer eligibility failures, and the provisions relating to self-correction of significant failures that have been substantially completed before the plan or plan sponsor is under examination.
  • An eligible inadvertent failure is treated as being identified — i.e., ineligible for self-correction — when the plan or plan sponsor comes under examination; however, a plan sponsor may self-correct an insignificant failure even if the plan is under examination and even if the failure is discovered under examination. 
  • With respect to “substantial completion” of a correction, if a plan sponsor self-corrects an error, other than an employer eligibility error, within 18 months of its discovery by the plan sponsor, the IRS considers the correction made within a reasonable time frame. An employer eligibility error will be self-corrected in a reasonable amount of time only if the plan sponsor ceases all contributions to the plan as soon as reasonably practicable but no more than six months post-discovery.

Recordkeeping Requirements

The guidance contained an important reminder for plan sponsors using self-correction under EPCRS. Currently (and unaltered by SECURE 2.0), a plan sponsor that uses self-correction should retain documents that substantiate that correction so the sponsor can produce them in the event of a plan audit. Proper substantiation includes documents that: (1) identify the failure, the years of occurrence, the number of employees affected and the date the failure was discovered; (2) both explain how the failure occurred and demonstrate those practices and procedures in effect at the time of the failure that were designed to promote and facilitate compliance; (3) identify and substantiate the correction method applied and the date the correction was completed; and (4) identify any changes made to the practices and procedures to prevent recurrence of the failure.

What’s Next?

Overall, the guidance provides helpful clarity to employers interested in self-correcting certain compliance defects in their retirement plans without IRS approval. A plan sponsor may self-correct an eligible inadvertent error on or after Dec. 29, 2022, even if the error occurred before that date.

Plan sponsors should work with their advisers to understand this guidance so that, if needed, it may be properly relied upon to pursue appropriate self-corrective measures under the expanded EPCRS. Plan sponsors also should know that nothing in SECURE 2.0 or this guidance changes the ability to submit a VCP as provided under Rev. Proc. 2021-30 to correct failures, including any eligible inadvertent error.

Reminder: 403(b) Plan Determination Letter Program Now Open

As a reminder to 403(b) plan sponsors, the IRS recently began accepting applications for initial determination letters for 403(b) plans. If a plan sponsor’s EIN ends in 1, 2 or 3, it may submit its determination letter application at this time. Plan sponsors with an EIN ending in any other number must wait until either June 1, 2024 or 2025 to file their applications.

Future McGuireWoods WorkCite updates will continue to cover significant developments. For further information, please contact one of the authors or any other member of the McGuireWoods employee benefits team.