What Major Changes to EPCRS Were Created by SECURE 2.0?

QUESTION: We understand that SECURE 2.0 significantly expands the rules for self-correcting 401(k) plan errors. Can you tell us more about these changes?

ANSWER: SECURE 2.0 (see our Checkpoint article) expands access to self-correction for 401(k) plans in multiple ways. As of December 29, 2022, self-correction under the IRS Employee Plan Compliance Resolution System (EPCRS) may cover any eligible inadvertent failure that would disqualify the plan, unless (1) the IRS identifies the error before actions have been taken that show a specific commitment to self-correct, or (2) the self-correction is not completed within a reasonable time after the failure is identified. An “eligible inadvertent failure” is defined expansively to include any failure that occurs despite compliance practices and procedures that satisfy the standards of EPCRS. The term does not, however, include egregious failures or those related to the diversion or misuse of plan assets or to an abusive tax avoidance transaction.

Participant-loan-related errors also may be self-corrected. While the IRS expanded the use of self-correction for plan loans in 2019 (see our Checkpoint article), SECURE 2.0 provides for even more protection—for example, both operational and plan document loan errors now can be self-corrected, and the DOL must treat the self-correction as meeting the requirements of its Voluntary Fiduciary Correction Program (see our Checkpoint Question of the Week), so long as it is made in accordance with existing EPCRS guidelines.

Although the expansion of the ability to self-correct is a welcome addition for many plan sponsors, there is still a need for additional clarity and guidance, which Treasury is expected to provide by December 29, 2024. For example, SECURE 2.0 does not specify when self-correction would be considered completed “within a reasonable time after the failure is identified.” In addition, SECURE 2.0 grants Treasury considerable latitude to limit self-correction, so the extent of the changes will not be fully known until guidance is issued.

For more information, see EBIA’s 401(k) Plans manual at Sections XXXIV.G (“Errors Involving Contributions”), XXXIV.M (“Errors Involving Plan Documents”), and XXXV (“Correcting Plan Mistakes: IRS’s EPCRS”).

Contributing Editors: EBIA Staff.

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