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), § 408(k), or § 408(p) 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 taxfavored basis. The components of EPCRS are the Self-Correction 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.

• 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.

  • Sponsors should be able to rely on the availability of EPCRS in taking corrective actions to maintain the taxfavored 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 without paying any fee or sanction, correct insignificant Operational Failures under a Qualified Plan or a 403(b) Plan, or a SEP or a SIMPLE IRA Plan, provided the SEP or SIMPLE IRA Plan is established and maintained on a document approved by the Service. 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) Plan, the Plan Sponsor generally may correct even significant Operational Failures without payment of any fee or sanction.

2003–25 I.R.B. 1054 June 23, 2003

• Voluntary correction with Service ap- proval (VCP) . A Plan Sponsor, at any time before audit, may pay a limited fee and receive the Service’s approval for correction of a Qualified Plan, 403(b) Plan, SEP or SIMPLE IRA Plan. Under VCP, there are special procedures for anonymous submissions and group submissions.

  • Correction on audit (Audit CAP) . If a failure (other than a failure corrected through SCP or VCP) is identified on audit, the Plan Sponsor may correct the failure and pay a sanction. The sanction imposed will bear a reasonable relationship to the nature, extent, and severity of the failure, taking into account the extent to which correction occurred before audit.