SECTION 4. PROGRAM

ELIGIBILITY

.01 Program eligibility for Qualified Plans. EPCRS includes three specific voluntary correction programs and an audit correction program for Qualified Plans. The voluntary correction programs are APRSC and VCR, both of which are available for Operational Failures, and Walk-in CAP, which applies to Plan Document and Demographic Failures and to Operational Failures that are not eligible for APRSC and VCR. APRSC is a voluntary employer-initiated procedure that generally does not involve Service approval, whereas VCR and Walk-in CAP are voluntary employer-initiated procedures that involve Service approval. The audit correction program is Audit CAP, which is available for all types of Qualification Failures found on examination that cannot be corrected under APRSC.

.02 Program eligibility for 403(b) Plans . EPCRS includes two specific voluntary correction programs and an audit correction program for 403(b) Plans. The voluntary correction programs are APRSC and TVC. APRSC is available only for Operational Failures, and is not available to correct Eligibility or Demographic Failures. APRSC is available to correct Excess Amounts using the method described in section 6.02(4)(b)(i) below, but not the method described in section 6.02(4)(b)(ii) below. There is no requirement that an employer obtain a private letter ruling from the Service covering its 403(b) Plan in order to be eligible for

APRSC. TVC is a voluntary program that involves Service approval. TVC applies to Eligibility, Demographic, and Operational Failures that are within the jurisdiction of Employee Plans, including Plans of Ineligible Employers. The audit correction program is Audit CAP, which is also available for Eligibility, Demographic, and Operational Failures found on examination that cannot be corrected under APRSC.

.03 Effect of examination . If the plan or Plan Sponsor is Under Examination, the VCR, Walk-in CAP, and TVC programs are not available; insignificant Operational Failures can be corrected under APRSC; and significant Operational Failures can be corrected under APRSC in limited circumstances. See section 9.

.04 Favorable Letter requirement . The VCR program and the provisions of APRSC relating to significant Operational Failures (see section 9) of a Qualified Plan are available only for a plan that is the subject of a Favorable Letter.

.05 Established practices and proce- dures . In order to be eligible for APRSC, the Plan Sponsor or administrator of a plan must have established practices and procedures (formal or informal) reasonably designed to promote and facilitate overall compliance with the requirements of § 401(a) or § 403(b). For example, the plan administrator of a Qualified Plan might use a check sheet for tracking allocations and indicate on that check sheet whether a particular employee was a key employee for top-heavy purposes. A plan document alone will not constitute evidence of established procedures. These established procedures must have been in place and routinely followed, but through an oversight or mistake in applying them, or because of an inadequacy in the procedures, an Operational Failure occurred. A 403(b) plan document is neither necessary nor sufficient to demonstrate that the employer, plan administrator, insurer or account custodian has in place established practices and procedures reasonably designed to facilitate overall compliance.

.06 Q ualified Plan amendments . (1) Correction by plan amendment not per- mitted in APRSC or VCR . Neither APRSC nor the VCR program is available for a Plan Sponsor to correct an Operational Failure by a plan amendment that conforms the terms of the plan to the

plan’s prior operations. Thus, if loans were made to participants, but the plan document did not permit loans to be made to participants, the failure cannot be corrected under VCR by retroactively amending the plan to provide for the loans. Nevertheless, if a Plan Sponsor corrects under APRSC or VCR, it may amend the plan to the extent necessary to reflect operational correction. For example, if the plan failed to satisfy the ADP test required under § 401(k)(3) and the employer must make qualified nonelective contributions not already provided for under the plan, the plan may be amended to provide for qualified nonelective contributions. The issuance of a compliance statement does not constitute a determination as to the effect of any plan amendment on the qualification of the plan.

(2) Availability of correction by plan amendment in Walk-in CAP . A Plan Sponsor may use Walk-in CAP for a Qualified Plan to correct an Operational Failure by a plan amendment to conform the terms of the plan to the plan’s prior operations, provided that the amendment complies with the requirements of § 401(a), including the requirements of §§ 401(a)(4), 410(b), and 411(d)(6). .07 Egregious failures . Neither APRSC nor the VCR program is available to correct Operational Failures that are egregious. For example, if an employer has consistently and improperly covered only highly compensated employees or if a contribution to a defined contribution plan for a highly compensated individual is several times greater than the dollar limit set forth in § 415, the failure would be considered egregious. Walk-In CAP and TVC are available to correct egregious failures; however, these failures are subject to the fees described in sections 13.05(3) and 13.06(6). .08 Diversion or misuse of plan assets . The APRSC, VCR, Walk-in CAP, TVC and Audit CAP programs are not available for correcting Qualification or 403(b) Failures relating to the diversion or misuse of plan assets.

PART III. DEFINITIONS, CORRECTION PRINCIPLES, AND RULES OF GENERAL APPLICABILITY

February 7, 2000 522 2000–6 I.R.B.