New self-correction policy for retirement plans.

• Author: Pierson, Steven G.

A recently released IRS administrative policy on self-correction of pension and profit-sharing plan violations is sure to be embraced by retirement plan sponsors and administrators. This new policy, released Jan. 7,1997, will bring much-sought-after relief from the severe penalties associated with often seemingly insignificant plan defects.

The IRS Administrative Policy Regarding Self-Correction (APRSC) builds on, and replaces, the IRS Administrative Policy Regarding Sanctions (APRS), which was established on Mar. 26, 1991. APRSC is broader in scope and places more emphasis on the self-correction of plan defects. Specifically, the policy eases eligibility requirements for relief, establishes a procedure that plan sponsors can follow to correct their plans in a timely manner, lengthens the list of plan operational violations that may be considered insubstantial (and, therefore, nondisqualifying), and extends relief to Sec. 403(b) tax-sheltered annuity plans.

Background

Over the years, the Service has developed many compliance programs designed to enforce the Code's plan qualification requirements and to promote continued plan qualification. These programs have evolved to meet the needs of employers, participants, examining agents and practitioners.

The first closing agreement program was established Dec. 21, 1990. This program allowed a plan sponsor to correct four specified defects by entering into a closing agreement with the IRS and paying a monetary sanction. Once this was done, the plan was considered qualified with respect to the specific defects corrected. The closing agreement program was expanded on Oct. 9, 1991 to allow for the correction of most plan defects. The APRS established in 1991 allowed plan sponsors to correct, without paying a monetary sanction, a de minimis defect that occurred in a single year in a plan with a compliance history.

Building on the experience gained from the closing agreement program, the Service implemented two voluntary compliance programs, the Voluntary Compliance Resolution (VCR) Program and the Walk-in Closing Agreement Program (Walk-in CAP). The establishment of these two programs allowed the plan sponsor, for the first time, to initiate correction of defects not considered de minimis.

The first voluntary compliance program was established by Rev. Proc. 92-89. This VCR Program was a temporary experimental program, initially scheduled to end after 1993, but now extended indefinitely. Under VCR, a...