The IRS issued its annual revenue procedures that govern the issuance of technical advice, letter rulings, exempt status determinations, and related issues. This Alert highlights the important changes to Voluntary Correction Program (VCP) user fees contained in Revenue Procedure 2018-4, superseding Revenue Procedure 2017-4.

Background

Revenue Procedure 2016-51 sets forth the Employee Plans Compliance Resolution System (EPCRS), the IRS's comprehensive system of correction programs for sponsors of tax-favored retirement plans. The components of EPCRS include VCP, which allows a plan sponsor not currently under IRS audit to correct retirement plan failures by submitting for IRS approval a VCP application that contains a user fee, and outlines the errors and plan sponsor's proposed correction methods. Formerly, VCP user fees were generally determined based on the number of participants in a plan as follows:

Special reduced user fees applied to VCP submissions involving certain common plan failures related to plan loans, minimum distribution requirements and timeliness of plan amendments. In addition, special user fees applied to group VCP submissions (ranging from $10,000 to $50,000), and special fee waivers applied for terminating orphan plans.

VCP User Fee Changes

Revenue Procedure 2018-4 modifies the VCP user fee structure, effective for VCP submissions mailed to the IRS on or after January 2, 2018, so that fees are now generally calculated based on the value of the plan's assets (rather than participant count) as follows:

User fees for group submissions and the special fee waiver for terminating orphan plans remain unchanged, but the special reduced fees for certain common plan failures are eliminated. The plan's end of year net assets, as reported in the most recently filed Form 5500 series return, are generally used to determine the value of the plan's assets.

Implications

While certain small plans and plans correcting common failures under the previously available reduced fee structure will see an increase in VCP user fees under the new fee structure, plans with 100 or more participants will generally enjoy a significant reduction in user fees. Previously, VCP user fees for such plans would generally range from $5,000 - $15,000, but now may be as low as $1,500 and will be no higher than $3,500, which should further encourage sponsors of these plans to perform compliance reviews and take advantage of the VCP. As a reminder, common compliance pitfalls that may require correction under the VCP include:

— Plan document issues, such as the failure of controlled group members to properly adopt a plan document or failure to update a plan document for law changes

Operational issues, such as not following the terms of a plan document and/or regulatory requirements related to eligibility, auto-enrollment, vesting, hardship withdrawals, plan loans, plan compensation definitions, timing of forfeitures, nondiscrimination testing and contribution limits

———————————————