SECTION 1. PURPOSE AND

OVERVIEW

.01 Purpose . This revenue procedure updates the comprehensive system of correction programs for sponsors of retirement plans that are intended to satisfy the requirements of § 401(a), § 403(a), § 403(b), or § 408(k) of the Internal Revenue Code (the “Code”), but that have not met these requirements for a period of time. This system, the Employee Plans Compliance Resolution System (“EPCRS”), permits plan sponsors to correct these failures and thereby continue to provide their employees with retirement benefits on a tax-favored basis. The components of EPCRS are the SelfCorrection Program (“SCP”), the Voluntary Correction Program (“VCP”), and the Audit Closing Agreement Program (“Audit CAP”).

.02 General principles underlying EPCRS . EPCRS is based on the following general principles:

• Sponsors and other administrators of eligible plans should be encouraged to establish administrative practices and procedures that ensure that these plans are operated properly in accordance with the applicable requirements of the Code.

• Sponsors and other administrators of eligible plans should satisfy the applicable plan document requirements of the Code.

• Plan sponsors and other administrators should make voluntary and

timely correction of any plan failures, whether involving discrimination in favor of highly compensated employees, plan operations, the terms of the plan document, or adoption of a plan by an ineligible employer. Timely and efficient correction protects participating employees by providing them with their expected retirement benefits, including favorable tax treatment.

• Voluntary compliance is promoted by providing for limited fees for voluntary corrections approved by the Service, thereby reducing employers’ uncertainty regarding their potential tax liability and participants’ potential tax liability.

• Fees and sanctions should be graduated in a series of steps so that there is always an incentive to correct promptly.

• Sanctions for plan failures identified on audit should be reasonable in light of the nature, extent, and severity of the violation.

• Administration of EPCRS should be consistent and uniform.

• Plan Sponsors should be able to rely on the availability of EPCRS in taking corrective actions to maintain the tax-favored status of their plans. .03 Overview . EPCRS includes the following basic elements:

• Self-correction (SCP) . A plan sponsor that has established compliance practices and procedures may, at any time, correct insignificant Operational Failures without paying any fee or sanction. In addition, in the case of a Qualified Plan that is the subject of a favorable determination letter from the Service or in the case of a 403(b)

2002–29 I.R.B. 136 July 22, 2002