SECTION 1. PURPOSE AND

BACKGROUND

.01 Purpose. (1) This revenue procedure augments the Employee Plans Compliance Resolution System (“EPCRS”). It describes and illustrates many of the correction methods sponsors of qualified plans under Internal Revenue Code § 401(a) or 403(a) can use to correct failures to comply with the qualified plan rules. Among the numerous favorable comments on EPCRS, many suggested that it would be helpful to provide additional guidance on acceptable means of correction.

(2) This revenue procedure, together with the standardized correction methods described in Rev. Proc. 98–22, 1998–12 I.R.B. 11, gives plan sponsors methods (and in many cases alternative methods) they can use to correct the Operational Failures typically encountered under EPCRS. Of course, other methods of correcting the same Operational Failures might also be reasonable and appropriate. The methods described in this revenue procedure will be particularly useful for plan sponsors self-correcting Operational Failures under APRSC. The revenue procedure includes numerous examples illustrating these correction methods.

(3) The correction methods described in this revenue procedure include the following —

• For § 401(k) and § 401(m) nondiscrimination failures, in addition to the SVP correction method, a “one-to-one” correction method which combines distrib

(1) § 401(a)(17) Failures (2) Hardship Distribution Failures

August 23, 1999 280 1999–34 I.R.B.

amendment can be made under Walk-in CAP; and

• If corrective contributions or allocations are made under a defined contribution plan, several alternative methods are provided for adjustments to reflect earnings. This revenue procedure also expands the SVP correction method for the exclusion of eligible employees from elective deferrals, employee after-tax contributions, and matching contributions for a full year to include partial year exclusions, and clarifies the SVP correction method for exclusion of eligible employees from employer nonelective contributions under profit-sharing and stock bonus plans.

(4) The Service anticipates that the methods and examples described in this revenue procedure will be updated, and the methods and examples may be supplemented or expanded. In addition, the Service will continue to monitor and improve EPCRS as a whole, and accordingly, intends to revise Rev. Proc. 98–22 to reflect experience and public comments.

.02 Background. (1) Rev. Proc. 98–22, modified and consolidated into EPCRS the various Internal Revenue Service programs relating to correction of certain failures (“Qualification Failures”), which affect the qualification of a plan intended to be qualified under § 401(a) or 403(a) (“Qualified Plans”), or § 403(b) (“403(b) plans”). The programs consolidated into EPCRS include the Administrative Policy Regarding Self-Correction (“APRSC”), the Voluntary Compliance Resolution (“VCR”) program, Walk-in CAP, and the Audit Closing Agreement Program (“Audit CAP”). Rev. Proc. 99–13, 1999–5 I.R.B. 52, modified and amplified Rev. Proc. 98–22 with respect to 403(b) plans.

(2) Section 6 of Rev. Proc. 98–22 sets forth correction principles that apply to all of the EPCRS programs. The standardized correction methods permitted under the Standardized VCR Procedure (“SVP”) set forth in Appendix A of Rev. Proc. 98–22 are deemed to be reasonable and appropriate methods of correction for certain Qualification Failures that arise solely from failure to follow the terms of a plan (“Operational Failures”). Section 6.02(2) of Rev. Proc. 98–22 provides that there may be more than one reasonable and appropriate correction method for a

Qualification Failure. Section 6.02(3) of Rev. Proc. 98–22 provides that corrective allocations under a defined contribution plan should be adjusted for earnings and forfeitures that would have been allocated to a participant’s account if the failure had not occurred.

.03 Overview. (1) Section 2 of this revenue procedure describes the effect of this revenue procedure and taxpayers’ ability to rely on it.

(2) Section 3 sets forth certain provisions that generally apply with respect to the correction methods and earnings adjustment methods under this revenue procedure, and assumptions that apply for purposes of the examples in this revenue procedure.

(3) Section 4 sets forth a number of reasonable and appropriate correction methods (and examples) that may be used to correct specific Operational Failures. Section 4 also clarifies and expands on certain correction methods under SVP. Consistent with section 6.02(2) of Rev. Proc. 98–22, other correction methods, different from those illustrated in this revenue procedure, may also be considered reasonable and appropriate for the same Operational Failure.

(4) Section 5 sets forth earnings adjustment methods (and examples) that may be used to adjust a corrective contribution or allocation for earnings in a defined contribution plan. Consequently, these earnings adjustment methods may be used to determine the earnings adjustments for corrective contributions or allocations under the correction methods in section 4 and under certain SVP correction methods. Other earnings adjustment methods, different from those illustrated in this revenue procedure, may also be appropriate for adjusting corrective contributions or allocations to reflect earnings.

.04 Request for Comments. The Service solicits comments and suggestions relating to this revenue procedure. In particular, the Service requests (1) comments on the correction methods, earnings adjustment methods, and examples described in this revenue procedure, (2) suggestions for alternative methods of correction for the Operational Failures addressed in this revenue procedure, and (3) suggestions for methods of correction for Qualification Failures not addressed in this revenue procedure (including meth

.03 Reliance. Taxpayers may rely on Rev. Proc. 98–22, as supplemented by this revenue procedure. Accordingly, if an Operational Failure addressed in this revenue procedure is corrected in accordance with the requirements of APRSC, VCR, Walk-in CAP, or Audit CAP, whichever is applicable; the eligibility requirements set forth in section 4 of Rev. Proc. 98–22 for the applicable program

ods for correcting failures with respect to 403(b) plans). It is requested that comments and suggestions be submitted by November 21, 1999, addressed to CC:DOM:CORP:R (Rev. Proc. 99–31), Room 5228, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. In the alternative, comments may be hand-delivered between the hours of 8 a.m. and 5 p.m. to CC:DOM:CORP:R (Rev. Proc. 99–31), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpayers may transmit comments electronically by using the following site: cynthia. grigsby@m1. irscounsel.treas.gov