SECTION 2. EFFECT OF THIS

REVENUE PROCEDURE ON PROGRAMS

.01 Effect on programs . This revenue procedure modifies and supersedes Rev. Proc. 2003–44, 2003–1 C.B. 1051, which was the prior consolidated statement of the correction programs under EPCRS. The modifications to Rev. Proc. 2003–44 that are reflected in this revenue procedure include:

rects the failures in accordance with the requirements of this revenue procedure, the plan will be treated as satisfying § 401(a), § 403(b), § 408(k), or § 408(p), as applicable, for purposes of applying § 3121(a)(5) (FICA taxes) and § 3306(b)(5) (FUTA taxes) (section 3.01)

ting a determination letter application when correcting certain Qualification Failures by plan amendment (sections 4.06, 10.08, and 11.03(3))

cludes providing more favorable benefits to an owner based on a purported collective bargaining agreement where

there has in fact been no good faith bargaining (section 4.11)

ability of programs under EPCRS in cases where the plan or plan sponsor is a party to an abusive tax avoidance transaction (sections 4.13 and 11.02(11))

plans by revising the definition of Excess Amounts (section 5.02(3))

terminating Orphan Plans and, with respect to those plans, providing for a possible exception to the requirement for full correction and a waiver of the VCP fee in appropriate circumstances (sections 5.06, 6.02(5)(f), and 12.02(3))

plan loan failures (sections 6.02(6) and 6.07), including adding a correction method for a plan that permits plan loans operationally but does not have the appropriate plan loan language (Appendix B 2.07(2))

failure to include an eligible employee in a cash or deferred arrangement under § 401(k) (section 6.02(7), Appendix A .05, and Appendix B 2.02)

method for a failure to obtain spousal consent (section 6.04(2)(c))

plans by eliminating the term Total Sanction Amount and replacing it with the term “Maximum Payment Amount” and eliminating correction by retention of Excess Amounts (sections 5.02(4) and 6.06(2))

and Audit CAP, if the failure involves the failure to satisfy the minimum required distribution requirements of § 401(a)(9), the Service will waive the excise tax requirements of § 4974 in appropriate cases (section 6.09(2))

may not pursue (section 6.09(3) and (4))

statement issued with respect to certain nonamender failures

May 30, 2006 949 2006–22 I.R.B.

SCP; and, if correction has been completed or substantially completed before the plan or Plan Sponsor is Under Examination, correction of significant Operational Failures can be completed under SCP.

.03 Favorable Letter requirement . The provisions of SCP relating to significant Operational Failures (see section 9) are available for a Qualified Plan only if the plan is the subject of a Favorable Letter. The provisions of SCP relating to insignificant Operational Failures (see section 8) are available for a SEP but only if the plan document consists of either (i) a valid Model Form 5305–SEP or 5305A–SEP adopted by an employer in accordance with the instructions on the applicable form (see Rev. Proc. 2002–10, 2002–1 C.B. 401), or (ii) a prototype SEP that has a current favorable opinion letter which has been amended in accordance with the procedures set forth in Rev. Proc. 2002–10. The provisions of SCP relating to insignificant Operational Failures (see section 8) are available for a SIMPLE IRA Plan but only if the plan document consists of either (i) a valid Model Form 5305–SIMPLE or 5304–SIMPLE adopted by an employer in accordance with the instructions on the applicable form (see Rev. Proc. 2002–10), or (ii) a current favorable opinion letter for a Plan Sponsor that has adopted a prototype SIMPLE IRA Plan which has been amended in accordance with the procedures set forth in Rev. Proc. 2002–10. .04 Established practices and proce- dures . In order to be eligible for SCP, 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 applicable Code requirements. For example, the plan administrator of a Qualified Plan that may be top-heavy under § 416 may include in its plan operating manual a specific annual step to determine whether the plan is top-heavy and, if so, to ensure that the minimum contribution requirements of the top-heavy rules are satisfied. A plan document alone does not constitute evidence of established procedures. In order for a Plan Sponsor or administrator to use SCP, these established procedures must have been in place and routinely followed, and an Operational Failure must have occurred through an oversight or mistake in applying them.

ond, given that § 402A permits a § 401(a) or 403(b) plan to offer employees the opportunity to designate elective deferrals as Roth contributions for taxable years beginning after December 31, 2005, comments are requested regarding methods to correct a failure to provide an eligible employee with the opportunity to make elective deferrals for a plan that permits an eligible employee to designate elective deferrals as Roth contributions. Third, the correction mechanism in current §1.415–6(b)(6) of the Income Tax Regulations is not included in the regulations that were proposed under § 415 (70 FR 31214) and published on May 31, 2005. The preamble to the proposed regulations provides that the correction mechanism (for excess annual additions) will be included in EPCRS in the future. It is expected that correction mechanism will in any event continue to be available under EPCRS, including under SCP where correction of a significant operational failure is permitted. Accordingly, comments are requested regarding the applicable correction methods for this failure. Comments are also requested on whether the correction mechanisms provided for in current §1.415–6(b)(6), including the maintenance of suspense accounts, should be retained as options under EPCRS, or whether correction of excess annual additions should be treated as excess amounts under this revenue procedure ( i.e., distributed or forfeited, as appropriate). Fourth, comments are requested regarding whether additional correction methods are needed in order for plans to take advantage of the fiduciary safe harbor recently issued by the Department of Labor for Orphan Plans (71 FR 20820) where the plan is subject to the requirements of §§ 401(a)(11) and 417 in light of the ability to satisfy those requirements by purchase of a commercial annuity contract.