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IRS expands Self-Correction Program

May 30, 2019 Article 4 minute read
Michael Krucker Laura Taylor
The IRS issued new guidance that expands the ability of plan sponsors to self-correct plan document and operational failures. Find out what this means for plan sponsors and how to determine whether self-correction is a viable option for their plans.

Image of open metal stairs wrapping around a building.The IRS has recently issued new guidance that expands the ability of plan sponsors to self-correct plan document and operational failures. The expansion is positive news for plan sponsors, as they’re now entitled to certain types of relief without having to submit an application or pay a fee to the Internal Revenue Service (IRS). Plan sponsors who have recently had an operational failure or a plan document failure occur, should review the new guidance to determine whether self-correction may be a viable option for their plans.

This article discusses the recently issued Revenue Procedure 2019-19, which expands a plan’s ability to correct plan failures through the IRS’s Employee Plans Compliance Resolution System (EPCRS) Self-Correction Program (SCP), and ultimately limits the number of plan failures that would otherwise be corrected under the IRS’s Voluntary Correction Program (VCP).

The guidance allows the use of SCP for 1) certain plan document failures, and 2) the correction of operational failures by retroactive plan amendment, without submitting VCP applications, if certain conditions are satisfied. The guidance also loosens certain requirements for dealing with plan loan failures.


The IRS allows plan sponsors to make corrections to operational failures to maintain the plan’s qualified status through EPCRS. Under EPCRS, there are two correction methods (that are identified outside an IRS examination): 

  • EPCRS – SCP: Available for significant failures if fixed within two years after the end of the plan year in which the failure occurred or any insignificant failure (based on facts and circumstances)
  • EPCRS – VCP: Significant failures corrected later than two years after the end of the plan year in which the failure occurred

Plan document failures

A plan document failure happens if a plan provision violates the requirements of Internal Revenue Code (“IRC”) Sections 401(a) or 403(a), for qualified plans or IRC Sec. 403(b) for governmental or tax-exempt plans. For plan document failures, the SCP can be used only if the following apply: 

  1. The plan has received a “favorable letter.”
  2. The error is not the initial failure to adopt a qualified plan or a written 403(b) plan document timely.
  3. The correction is made within the SCP correction period for significant failures.

Favorable letter requirement

A “favorable letter” means a favorable determination letter in the case of individually designed plans or a favorable opinion or advisory letter in the case of pre-approved plans.1 In the case of a pre-approved plan, it means a favorable letter is still current. If the plan was terminated in the middle of a pre-approved plan cycle, the plan must have been amended to reflect the qualification requirements that applied as of the date of termination.

The error is not the initial failure to adopt a qualified plan or a written 403(b) plan document timely

The SCP is not available to correct a failure to timely adopt an initial qualified plan document, or a failure to adopt an initial written 403(b) plan within the time frames and requirements specified in Notice 2009-3 and Treas. Reg. 1.403(b)-3(b)(3).

Must be made within the SCP correction period for significant failures

The SCP correction period generally extends to the last day of the second plan year following the plan year for which the failure occurred. However, the correction period ends as of the date the plan is under examination, if applicable. Thus, if a plan document failure occurred in plan year 2017, for example, the sponsor would need to correct the issue by the end of the 2019 plan year, assuming the plan wasn’t under examination.

An extension to the SCP correction period is available in the case of a failure that relates to transferred assets or to a plan assumed in connection with a corporate merger, acquisition, or other similar employer transaction. In this case, the correction period would not end until the last day of the first plan year that begins after the transaction between the Plan Sponsor and the sponsor of the transferor plan or the prior sponsor of an assumed plan.

Operational failure correction by retroactive plan amendment

Perhaps the most significant change provided by the IRS is that they have substantially loosened the ability to correct operational failures by plan amendment. A plan amendment can be made when a plan was not operated according to its terms. Three conditions must be met in order to self-correct by amendment: 

  1. The plan amendment would result in an increase of a benefit, right, or feature.
  2. The increase in the benefit, right, or feature is available to all eligible employees.
  3. Providing the increase in the benefit, right, or feature is permitted under the IRC and satisfies the correction principles of EPCRS Sec. 6.02.

Expanded opportunities to correct plan loan failures under the SCP

Certain plan loan failures can now be corrected under the SCP, including:

  1. Failures to obtain spousal consent for a loan, if the spouse consents once the error is discovered
  2. Defaulted loans and reporting of deemed distributions
  3. Expanding the SCP to correct certain plan loan failures by plan amendment

Failure to obtain spousal consent for a loan

If spousal consent is not obtained for a plan loan, and the spouse provides subsequent consent, the error can be corrected under the SCP. If spousal consent is not obtained, however, the failure must still be corrected under the VCP.

Reporting of deemed distributions

If correction of a plan loan failure is not made, a “deemed distribution” of the loan is reported by the Plan Sponsor on Form 1099-R. Previously, the deemed amount was required to be reported in the year of the failure, unless the plan sponsor requested as part of VCP that it be reported in the year of the correction. Rev. Proc. 2019-19 now allows the Form 1099-R to be issued for the year of the correction, without requesting relief from the IRS.

Expanding SCP to correct certain plan loan failures by plan amendment

Revenue Procedure 2019-19 also contains a new correction method for plan loans when the number of plan loans exceeds the number permitted under the plan, in addition to the current correction method relating to the failure of granting plan loans to a participant under a plan that does not permit loans. Correction under the SCP would require the plan sponsor to adopt a retroactive plan amendment to conform the plan document to the plan’s operation. The following three conditions must be met:

  1. The plan, as amended, would have satisfied the qualification requirements under IRC Sec. 401(a) and the requirements applicable to plan loans under IRC Sec. 72(p) had the amendment been adopted when plan loans were first made available.
  2. The amendment must comply with IRC Sec. 401(a) requirements.
  3. Plan loans, including plan loans in excess of the number permitted by plan terms, were available to all participants or solely to one or more non-highly compensated employees.


Revenue Procedure 2019-19 expands the application of the SCP and reduces the burden imposed on plan sponsors when correcting certain plan document and operational errors. Plan sponsors that have a current plan document or operational error, or have questions regarding the SCP process, should contact a member of Plante Moran's employee benefits consulting group for further guidance.

1 403(b) Plans are treated as having a “Favorable Letter” if the employer is considered an eligible employer and adopts a written 403(b) Plan that is intended to satisfy IRC § 403(b), or if the employer has failed to timely adopt a 403(b) Plan and corrects the failure in accordance with the EPCRS requirements.

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