SECTION 16. CHRONOLOGY

.01 APRSC. (1) On March 26, 1991, the Service established the Administrative Policy Regarding Sanctions (APRS), under which, at the discretion of the applicable Key District Office, certain minor Operational Failures of the qualification requirements for pension, profitsharing and stock bonus plans could be treated as not resulting in either plan disqualification or the related adverse tax consequences. To be eligible for relief under APRS, Operational Failures had to satisfy six narrowly drawn criteria.

(2) On December 23, 1996, the Service replaced APRS with APRSC, an administrative policy that broadened the scope of APRS in three significant ways: (a) it expanded the original criteria for eligibility, (b) it established a self-correction procedure whereby plan sponsors may correct their plans for Operational Failures within a specified time period, and (c) it extended relief to § 403(b) plans.

(3) Announcement 97–121 extended the period for correcting Operational Failures under Part IV of APRSC from the end of the first plan year following the plan year in which the Operational Failure occurred, to the end of the second plan year following the plan year in which the Operational Failure occurred.

.02 VCR program. (1) On November 16, 1992, the Service established the VCR program as a temporary, experimental program ending on December 31, 1993. On September 20, 1993, Rev. Proc. 93–36, 1993–2 C.B. 474, extended the expiration date of the VCR program to December 31, 1994, and added SVP, a simplified correction procedure for certain listed failures.

(2) On September 26, 1994, Rev. Proc. 94–62, 1994–2 C.B. 778, extended the VCR program indefinitely and provided that the VCR program would continue to be administered in the Headquarters Office. In addition, Rev. Proc. 94–62 expanded the types of failures that could be corrected under SVP, modified the VCR eligibility standards, and made other administrative and technical changes.

(3) On April 15, 1996, Rev. Proc. 96–29, 1996–1 C.B. 693, modified Rev. Proc. 94–62 to change the eligibility standards of the VCR program relating to whether or not a plan is Under Examination and whether a plan is considered to have a favorable letter.

.03 Walk-in CAP. (1) The Service established the Walk-in CAP program under Rev. Proc. 94-16, 1994-1 C.B. 455, in response to requests by sponsors of plans that were not eligible for the VCR program, but were not under Employee Plans examination, to be given an opportunity, similar to the VCR program, to voluntarily correct their plan failures. Rev. Proc. 94-16 enabled sponsors of plans with Plan Document or certain Operational Failures to correct failures in their plans and pay a limited monetary sanction.

March 23, 1998 26 1998–12 I.R.B.

.01 General rule. This appendix sets forth Operational Failures and corrections under SVP in accordance with section 10.12. In each case, the method described corrects the Operational Failure identified in the headings below. Corrective allocations and distributions should reflect earnings and actuarial adjustments in accordance with section 6.02(3)(a).

.02 Failure to properly provide the min- imum top-heavy benefit under § 416 of the Code to non-key employees. In a defined contribution plan, the permitted correction method is to properly contribute and allocate the required top-heavy minimums to the plan in the manner provided for in the plan on behalf of the non-key employees (and any other employees required to receive top-heavy allocations under the plan). In a defined benefit plan, the minimum required benefit must be accrued in the manner provided in the plan.

.03 Failure to satisfy the ADP test set forth in § 401(k)(3), the ACP test set forth in § 401(m)(2), or the multiple use test of § 401(m)(9). The permitted correction method is to make qualified nonelective contributions (QNCs) (as defined in § 1.401(k)–1(g)(13)) on behalf of the nonhighly compensated employees to the extent necessary to raise the actual deferral percentage or actual contribution percentage of the nonhighly compensated employees to the percentage needed to pass the test or tests. The contributions must be made on behalf of all eligible nonhighly compensated employees (to the extent permitted under § 415) and must either be the same flat dollar amount or the same percentage of compensation. QNCs contributed to satisfy the ADP test need not be matched. Employees who would have been eligible for a matching

(2) On April 15, 1996, Rev. Proc. 96–29 modified Rev. Proc. 94–16 to change the definition of when a plan is ineligible for Walk-in CAP because the plan is under an Employee Plans or Exempt Organizations examination.

.04 Audit CAP. Audit CAP, established as a pilot program in 1990, permitted a sponsor of a Qualified Plan to avoid disqualification of its plan by entering into a closing agreement with the Service conditioned upon correction of plan failure(s) discovered upon an Employee Plans or Exempt Organizations examination and the payment of a monetary sanction. Audit CAP was expanded and made permanent in 1991.