SECTION 3. GENERALLY

APPLICABLE PROVISIONS

.01 General. Unless otherwise specified, the provisions of this section 3 apply for purposes of the correction methods in section 4 and the earnings adjustment methods in section 5 of this revenue procedure.

.02 Correction Should Not Violate §401(a). As provided in Rev. Proc. 98– 22, section 6.02(2)(d), the correction method used to correct an Operational Failure should not violate § 401(a). If an additional Qualification Failure is created as a result of the use of a correction method in this revenue procedure, then that Qualification Failure also must be corrected in conjunction with the use of that correction method and in accordance with the requirements of EPCRS.

.03 Consistency Requirement. Generally, where more than one correction method is available to correct a type of Operational Failure for a plan year (or where there are alternative ways to apply a correction method), the correction method (or alternative ways to apply the correction method) should be applied consistently in correcting all Operational Failures of that type for that plan year. Similarly, earnings adjustment methods generally should be applied consistently with respect to corrective contributions or allocations for a particular type of Operational Failure for a plan year.

.04 Treatment of Excess Amounts. A distribution of an Excess Amount is not

eligible for the favorable tax treatment accorded to distributions from qualified plans (such as eligibility for rollover under § 402(c)). To the extent that a current or prior distribution was a distribution of an Excess Amount, that distribution is not an eligible rollover distribution. Thus, for example, if such a distribution was contributed to an individual retirement arrangement (“IRA”), the contribution is not a valid rollover contribution for purposes of determining the amount of excess contributions (within the meaning of § 4973) to the individual’s IRAs. Where an Excess Amount has been distributed in connection with an Operational Failure that is being corrected using a correction method set forth in section 4, the employer must notify the recipient that (1) the Excess Amount was distributed and (2) the Excess Amount was not eligible for favorable tax treatment accorded to distributions from qualified plans (and, specifically, was not eligible for tax-free rollover).

.05 No Effect on Other Law. In accordance with section 6.06 of Rev. Proc. 98–22, compliance under these programs has no effect on the rights of any party under any other law, including Title I of the Employee Retirement Income Security Act of 1974.

.06 Definitions. (1) Definitions from Rev. Proc. 98–22. The definitions set forth in section 5 of Rev. Proc. 98–22 apply for purposes of this revenue procedure.

(2) Excess Amount Defined. For purposes of this revenue procedure, an Excess Amount is (a) an Overpayment (within the meaning of section 4.05(2)), (b) an elective deferral or employee aftertax contribution returned to satisfy § 415, (c) an elective deferral in excess of the limitation of § 402(g) that is distributed, (d) an excess contribution or excess aggregate contribution that is distributed to satisfy § 401(k) or § 401(m), or (e) any similar amount required to be distributed in order to maintain plan qualification.

.07 Assumptions for Examples. Unless otherwise specified, for ease of presentation, the examples assume that:

(1) the plan year and the § 415 limitation year are the calendar year;

(2) the employer maintains a single plan intended to satisfy § 401(a) and has never maintained any other plan;

(3) in a defined contribution plan, the plan provides that forfeitures are used to reduce future employer contributions;

(4) the Qualification Failures are Operational Failures and the eligibility and other requirements for APRSC, VCR, Walk-in CAP, or Audit CAP, whichever applies, are satisfied; and

(5) there are no Qualification Failures other than the described Operational Failures, and if a corrective action would result in any additional Qualification Failure, appropriate corrective action is taken for that additional Qualification Failure in accordance with EPCRS.