SECTION 6. CORRECTION

PRINCIPLES AND RULES OF GENERAL APPLICABILITY

(2) A plan that is under an Employee Plans examination includes any plan for which the Plan Sponsor, or a representative, has received verbal or written notification from Employee Plans of an impending Employee Plans examination, or of an impending referral for an Employee Plans examination, and also includes any plan that has been under an Employee Plans examination and is in Appeals or in litigation for issues raised in an Employee Plans examination. A plan is considered to be Under Examination if it is aggregated for purposes of satisfying the nondiscrimination requirements of § 401(a)(4), the minimum participation requirements of § 401(a)(26), the minimum coverage requirements of § 410(b), or the requirements of § 403(b)(12)(A)(i), with any plan that is Under Examination. In addition, a plan is considered to be Under Examination with respect to a failure of a qualification requirement (other than those described in the preceding sentence) if the plan is aggregated with another plan for purposes of satisfying that qualification requirement (for example, § 401(a)(30), 415, or 416) and that other plan is Under Examination. For example, assume Plan A has a § 415 failure, Plan A is aggregated with Plan B only for purposes of § 415, and Plan B is Under Examination. In this case, Plan A is considered to be Under Examination with respect to the § 415 failure. However, if Plan A has a failure relating to the spousal consent rules under § 417 or the vesting rules of § 411, Plan A is not considered to be Under Examination with respect to the § 417 or 411 failure. For purposes of this revenue procedure, the term aggregation does not include consideration of benefits provided by various plans for purposes of the average benefits test set forth in § 410(b)(2).

(3) An Employee Plans examination also includes a case in which a Plan Sponsor has submitted any Form 5300, 5307, or 5310 and the Employee Plans agent notifies the Plan Sponsor, or a representative, of possible failures, whether or not the Plan Sponsor is officially notified of an “examination.” This would include a case where, for example, a Plan Sponsor has applied for a determination letter on plan termination, and an Employee Plans agent notifies the Plan Sponsor that there are partial termination concerns. In addition, if, during the review process, the agent requests additional information that indicates the existence of a failure not previously identified by the Plan Sponsor, the plan is considered to be under an Employee Plans examination. If, in such a case, the determination letter request under review is subsequently withdrawn, the plan is nevertheless considered to be under an Employee Plans examination for purposes of eligibility under SCP and VCP with respect to those issues raised by the agent reviewing the determination letter application. The fact that a Plan Sponsor voluntarily submits a determination letter application does not constitute a voluntary identification of a failure to the Service. In order to be eligible for VCP, the Plan Sponsor (or the authorized representative) must identify each failure, in writing, to the reviewing agent before the agent recognizes the existence of the failure or addresses the failure in communications with the Plan Sponsor (or the authorized representative).

(4) A Plan Sponsor that is under an Exempt Organizations examination includes any Plan Sponsor that has received (or whose representative has received) verbal or written notification from Exempt Organizations of an impending Exempt Organizations examination or of an impending referral for an Exempt Organizations examination and also includes any Plan Sponsor that has been under an Exempt Organizations examination and is now in Appeals or in litigation for issues raised in an Exempt Organizations examination.

.01 Correction principles; rules of general applicability . The general correction principles in section 6.02 and rules of general applicability in sections 6.03 through 6.13 apply for purposes of this revenue procedure.

.02 Correction principles . Generally, a failure is not corrected unless full correction is made with respect to all participants and beneficiaries, and for all taxable years (whether or not the taxable year is closed). Even if correction is made for a closed taxable year, the tax liability associated with that year will not be redetermined because of the correction. Correction is determined taking into account the terms of the plan at the time of the failure. Correction should be accomplished taking into account the following principles:

(1) Restoration of benefits . The correction method should restore the plan to the position it would have been in had the failure not occurred, including restoration of current and former

January 22, 2013 330 2013–4 I.R.B.

participants and beneficiaries to the benefits and rights they would have had if the failure had not occurred.

(2) Reasonable and appropriate correction . The correction should be reasonable and appropriate for the failure. Depending on the nature of the failure, there may be more than one reasonable and appropriate correction for the failure. For Qualified Plans and 403(b) Plans, any correction method permitted under Appendix A or Appendix B is deemed to be a reasonable and appropriate method of correcting the related failure. Any correction method permitted under Appendix A or Appendix B applicable to a SEP, or a SIMPLE IRA Plan is similarly deemed to be a reasonable and appropriate method of correcting the related failure. If a plan has a different but analogous failure to one set forth in Appendix A or B (such as the failure to provide a matching contribution by a governmental plan that is not subject to § 401(m)), then the analogous correction method under Appendix A or B is generally available to correct any failure. Whether any other particular correction method is reasonable and appropriate is determined taking into account the applicable facts and circumstances and the following principles:

(a) The correction method should, to the extent possible, resemble one already provided for in the Code, regulations, or other guidance of general applicability. For example, for Qualified Plans and 403(b) Plans, the correction method set forth in § 1.402(g)–1(e)(2) would be the typical means of correcting a failure under § 402(g).

(b) The correction method should keep plan assets in the plan, except to the extent the Code, regulations, or other guidance of general applicability provide for correction by distribution to participants or beneficiaries or return of assets to the employer. For example, if an excess allocation (not in excess of the § 415 limits) made under a Qualified Plan was made for a participant under a plan (other than a § 401(k) plan), the excess should be reallocated to other participants or, depending on the facts and circumstances, used to reduce future employer contributions.

(c) The correction method for failures relating to nondiscrimination should provide benefits for nonhighly compensated employees. For example, for Qualified Plans, the correction method set forth in § 1.401(a)(4)–11(g) (rather than methods making use of the special testing provisions set forth in § 1.401(a)(4)–8 or 1.401(a)(4)–9) would be the typical means of correcting a failure to satisfy nondiscrimination requirements. Similarly, the correction of a failure to satisfy the requirements of § 401(k)(3) or 401(m)(2), or, for plan years beginning on or before December 31, 2001, the multiple use test of § 401(m)(9) (relating to nondiscrimination), solely by distributing excess amounts to highly compensated employees would not be the typical means of correcting such a failure.

(d) The correction method should not violate another applicable specific requirement of § 401(a) or 403(b) (for example, § 401(a)(4), 411(d)(6), or 403(b)(12), as applicable), 408(k) for SEPs, or 408(p) for SIMPLE IRA Plans, or a parallel requirement in Part 2 of Subtitle B of Title I of ERISA (for plans that are subject to Part 2 of Subtitle B of Title I of ERISA). If an additional failure is nevertheless created as a result of the use of a correction method in this revenue procedure, then that failure also must be corrected in conjunction with the use of that correction method and in accordance with the requirements of this revenue procedure.

(e) If a correction method is one that another government agency has authorized with respect to a violation of legal requirements within its interpretive authority and that correction relates to a violation for which there is a failure to which this revenue procedure applies, then the Service may take the correction method of the other governmental agency into account for purposes of this revenue procedure. For example:

(i) If the plan is subject to ERISA, for a failure that results from the employer having ceased to exist, the employer no longer maintaining the plan, or similar reasons, the permitted correction is to terminate the plan and distribute plan assets to participants and beneficiaries in accordance with standards and procedures substantially similar to those set forth in section 2578.1 of the Department of Labor regulations (relating to abandoned plans). This correction must satisfy four conditions. First, the correction must comply with standards and procedures substantially similar to those set forth in section 2578.1 of the Department of Labor regulations

2013–4 I.R.B. 331 January 22, 2013

(relating to abandoned plans). Second, the qualified termination administrator, based on plan records located and updated in accordance with the Department of Labor regulations, must have reasonably determined whether, and to what extent, the survivor annuity requirements of §§ 401(a)(11) and 417 apply to any benefit payable under the plan and must take reasonable steps to comply with those requirements (if applicable). Third, each participant and beneficiary must have been provided a nonforfeitable right to his or her accrued benefits as of the date of deemed termination under the Department of Labor regulations, subject to Earnings between that date and the date of distribution. Fourth, participants and beneficiaries must receive notification of their rights under § 402(f). In addition, notwithstanding correction under this revenue procedure, the Service reserves the right to pursue appropriate remedies under the Code against any party who is responsible for the plan, such as the Plan Sponsor, plan administrator, or owner of the business, even in its capacity as a participant or beneficiary under the plan. See also section .09(1) of Appendix A for parallel rules for plans that are not subject to ERISA.

(ii) In the case of a violation of the fiduciary standards imposed by Part 4 of Subtitle B of Title I of ERISA, correction under the Voluntary Fiduciary Correction Program established by the Department of Labor (at 71 FR 20262) for a fiduciary violation for which there is a similar failure under this revenue procedure would generally be taken into account as correction under this revenue procedure. (See also section 7.3(b) of the Department of Labor’s Voluntary Fiduciary Correction Program under which correction of a defaulted participant loan that provides for repayment in accordance with § 72(p)(2) requires only submission of the correction under VCP and inclusion of the VCP compliance statement (with proof of any required corrective payment).)

(3) 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 one of the 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. In the case of a Group Submission, the consistency requirement applies on a plan by plan basis.

(4) Principles regarding corrective allocations and corrective distributions . The following principles apply where an appropriate correction method includes the use of corrective allocations or corrective distributions:

(a) Corrective allocations under a defined contribution plan should be based upon the terms of the plan and other applicable information at the time of the failure (including the compensation that would have been used under the plan for the period with respect to which a corrective allocation is being made) and should be adjusted for Earnings and forfeitures that would have been allocated to the participant’s account if the failure had not occurred. However, a corrective allocation is not required to be adjusted for losses. Accordingly, corrective allocations must include gains and may be adjusted for losses. For additional information, see Appendix B section 3 Earnings Adjustment Methods And Examples.

(b) A corrective allocation to a participant’s account because of a failure to make a required allocation in a prior limitation year is not considered an annual addition with respect to the participant for the limitation year in which the correction is made, but is considered an annual addition for the limitation year to which the corrective allocation relates. However, the normal rules of § 404, regarding deductions, apply.

(c) Corrective allocations should come only from employer nonelective contributions, including forfeitures if the plan permits their use to reduce employer contributions). For purpose of correcting a failed ADP, ACP, or multiple use test, any amounts used to fund QNECs must satisfy the definition of QNEC in §1.401(k)–6.

January 22, 2013 332 2013–4 I.R.B.

(d) In the case of a defined benefit plan, a corrective distribution for an individual should be increased to take into account the delayed payment, in accordance with the plan’s provisions for actuarial equivalence (after considering the applicable requirements of §§ 417(e)(3) and 415(b) or any other applicable provision) that were in effect on the date that the distribution should have been made. A corrective distribution is not subject to the requirements of § 417(e)(3) if it is made to make up for missed payments with respect to a benefit that is not subject to the requirements of § 417(e)(3).

(e)(i) In the case of a single employer defined benefit plan, a payment of benefits that fails to satisfy the requirements of § 436(b), (c), or (e) can be corrected by the Plan Sponsor (including another person acting on behalf of the Plan Sponsor) making a contribution to the plan equal to the following amount (with interest up to the date of the contribution): (A) in the case of a failure to satisfy § 436(b) with respect to an unpredictable contingent event benefit, the amount described in § 436(b)(2) with respect to that benefit; (B) in the case of a failure to satisfy § 436(c) with respect to an amendment, the amount described in § 436(c)(2) with respect to that amendment; and (C) in the case of a failure to satisfy § 436(e), the amount described in § 436(e)(2) with respect to that failure. See also section 6.06(3) for correction of an Overpayment (including a payment of benefits that exceeds the limitations imposed by § 436(d) or 436(b), (c), or (e)).

(ii) A corrective distribution or a corrective amendment (where a correction is accomplished through a plan amendment) is not subject to the requirements of § 436, but, if the plan is subject to a restriction pursuant to § 436 at the time of the correction, generally the Plan Sponsor must make a contribution to the plan at the time of the correction in the following amount: (A) if a corrective distribution is made in a single-sum payment or other prohibited payment (as defined in § 436(d)(5)) at a time when the plan is subject to a restriction pursuant to § 436(d), the Plan Sponsor must generally contribute to the plan the amount of that corrective distribution (but only half of the corrective distribution must be contributed if the payment is made at a time when the plan is subject to a restriction pursuant to § 436(d)(3)); and (B) if a corrective amendment is made at a time when the plan is subject to a restriction pursuant to § 436(c), the Plan Sponsor must generally contribute to the plan an amount equal to the increase in the funding target of the plan (as defined in § 430) attributable to that amendment. No contribution is required to be made under this paragraph (e)(ii) if the corrective distribution is made in a form that is not a prohibited payment (for example, if the correction is made by actuarially increasing future payments that are made in a form that is not a prohibited payment).

(iii) Any contribution made by the Plan Sponsor pursuant to this paragraph (e) is treated in the same manner as a “section 436 contribution” (as defined in § 1.436–1(j) (7)). Thus, the contribution is treated as separate from a minimum required contribution under § 430 and is disregarded in determining the amount added to a prefunding balance under § 430(f)(6). See § 1.436–1(f)(2) generally for rules relating to § 436 contributions.

(f) In the case of a defined contribution plan, a corrective contribution or distribution should be adjusted for Earnings from the date of the failure (determined without regard to any Code provision which permits a corrective contribution or distribution to be made at a later date).

(5) Special exceptions to full correction . In general, a failure must be fully corrected. Although the mere fact that correction is inconvenient or burdensome is not enough to relieve a Plan Sponsor of the need to make full correction, full correction may not be required in certain situations if it is unreasonable or not feasible. Even in these situations, the correction method adopted must be one that does not have significant adverse effects on participants and beneficiaries or the plan, and that does not discriminate significantly in favor of highly compensated employees. The exceptions described below specify those situations in which full correction is not required.

(a) Reasonable estimates . If either (i) it is possible to make a precise calculation but the probable difference between the approximate and the precise restoration of a participant’s benefits is insignificant and the administrative cost of determining precise restoration would significantly

2013–4 I.R.B. 333 January 22, 2013

exceed the probable difference or (ii) it is not possible to make a precise calculation (for example, where it is impossible to provide plan data), reasonable estimates may be used in calculating appropriate correction. If it is not feasible to make a reasonable estimate of what the actual investment results would have been, a reasonable interest rate may be used. For this purpose, the interest rate used by the Department of Labor’s Voluntary Fiduciary Correction Program Online Calculator (“VFCP Online Calculator”) is deemed to be a reasonable interest rate. The VFCP Online Calculator can be found on the internet at http://www.dol.gov/ebsa/calculator .

(b) Delivery of small benefits . If the total corrective distribution due a participant or beneficiary is $75 or less, the Plan Sponsor is not required to make the corrective distribution if the reasonable direct costs of processing and delivering the distribution to the participant or beneficiary would exceed the amount of the distribution. This section 6.02(5)(b) does not apply to corrective contributions. Corrective contributions are required to be made with respect to a participant with an account under the plan.

(c) Recovery of small Overpayments . Generally, if the total amount of an Overpayment to a participant or beneficiary is $100 or less, the Plan Sponsor is not required to seek the return of the Overpayment from the participant or beneficiary. The Plan Sponsor is not required to notify the participant or beneficiary that the Overpayment is not eligible for favorable tax treatment accorded to distributions from the plan (and, specifically, is not eligible for tax-free rollover).

(d) Locating lost participants . (i) Reasonable actions must be taken to find all current and former participants and beneficiaries to whom additional benefits are due, but who have not been located after a mailing to the last known address. In general, such actions include, but are not limited to, a mailing to the individual’s last known address using certified mail, and, if that is unsuccessful, an additional search method, such as the use of the Social Security letter forwarding program, a commercial locator service, a credit reporting agency, or Internet search tools. Depending on the facts and circumstances, the use of more than one of these additional search methods may be appropriate. A plan will not be considered to have failed to correct a failure due to the inability to locate an individual if reasonable actions to locate the individual have been undertaken in accordance with this paragraph; provided that, if the individual is later located, the additional benefits are provided to the individual at that time.

(ii) The IRS Letter Forwarding Program is no longer available as a means to search for participants and beneficiaries to whom additional benefits under the plan are due. Any request for locater services received by the Service on or after August 31, 2012 will not be processed. See Rev. Proc. 2012–35, 2012–37 I.R.B. 341.

(iii) A Plan Sponsor described in (A) or (B) of this section 6.02(5)(d)(iii)) that is correcting failures that require payment of additional benefits to participants and beneficiaries will have until the earlier of: a) May 30, 2013, or b) if a request under the IRS Letter Forwarding Program has been submitted on or after August 31, 2012, 150 days after the date of notification by the Service that the request to locate missing participants and beneficiaries will not be processed, to take other reasonable actions in accordance with section 6.02(5)(d)(i) to locate participants and beneficiaries to whom additional benefits are due. A Plan Sponsor is described in this section 6.02(5)(d)(iii) if it:

(A) received a VCP compliance statement for which the 150-day correction period set forth in section 10.07(9) of this revenue procedure has not expired, or

(B) is correcting failures under SCP and is within 150 days of the expiration of the correction period set forth in section 9.02(1) of this revenue procedure.

(e) Small Excess Amounts . Generally, if the total amount of an Excess Amount with respect to the benefit of a participant or beneficiary is $100 or less, the Plan Sponsor is not required to distribute or forfeit such Excess Amount. However, if the Excess Amount exceeds a statutory limit, the participant or beneficiary must be notified that the Excess Amount, including any investment gains, is not eligible for favorable tax treatment accorded to distributions from the plan (and, specifically, is not eligible for tax-free rollover). See section 6.06(1) for such notice requirements.

January 22, 2013 334 2013–4 I.R.B.

(f) Orphan Plans . The Service retains the discretion to determine under VCP and Audit CAP whether full correction will be required with respect to a terminating Orphan Plan.

(6) Correction principle for loan failures . In the case of a loan failure corrected in accordance with section 6.07(2)(b) or (c) and section 6.07(3), the participant is generally responsible for paying the corrective payment. However, with respect to the failure listed in section 6.07(3), the employer should pay a portion of the correction payment on behalf of the participant equal to the interest that accumulates as a result of such failure - generally determined at a rate equal to the greater of the plan loan interest rate or the rate of return under the plan.

(7) Correction for exclusion of employees with respect to elective deferrals or after-tax em- ployee contributions . If a Qualified Plan or 403(b) Plan has an Operational Failure that consists of excluding an employee that should have been eligible to make an elective deferral or an after-tax employee contribution, the employer should contribute to the plan on behalf of the excluded employee an amount that makes up for the value of the lost opportunity for the employee to have a portion of his or her compensation contributed to the plan accumulated with earnings tax deferred in the future. This correction principle applies solely to this limited circumstance. It does not, for example, extend to the correction of a failure to satisfy a nondiscrimination test, e.g., the ADP test pursuant to § 401(k)(3) and the ACP test pursuant to § 401(m)(2). Specific methods and examples to correct this failure are provided in Appendix A, section .05, and Appendix B, section 2.02. Similarly, the methods and examples provided for correcting this failure do not extend to other failures. Thus, the correction methods and the examples in Appendix A, section .05, and Appendix B, section 2.02, cannot, for example, be used to correct ADP/ACP failures.

(8) Correction by plan amendment in VCP, Audit CAP, and SCP . For the availability of correction by plan amendment, see section 4.05.

(9) Reporting . Any corrective distributions from the plan should be properly reported.

.03 Correction of an Employer Eligibility Failure . (1) The permitted correction of an Employer Eligibility Failure is the cessation of all contributions (including elective deferrals and after-tax employee contributions). For VCP submissions, the cessation must occur no later than the date the submission under VCP is filed. The assets in such a plan are to remain in the trust, annuity contract, or custodial account and are to be distributed no earlier than the occurrence of one of the applicable distribution events, e.g., for 403(b) Plans, an event described in § 403(b)(7) (to the extent the assets are held in custodial accounts) or § 403(b)(11) (for those assets invested in annuity contracts that would be subject to § 403(b)(11) restrictions if the employer were eligible).

(2) Cessation of contributions is not required if continuation of contributions would not be an Employer Eligibility Failure (for example, with respect to a tax-exempt employer that may maintain a § 401(k) plan after 1996). In the case of a 403(b) Failure which is an Employer Eligibility Failure, correction may include treating contributions as not being excluded under § 403(b) (and thus the contributions would be treated as having been contributed, for example, to an annuity contract to which § 403(c) applies).

(3) A plan that is corrected through VCP or Audit CAP is treated as subject to all of the requirements and provisions of §§ 401(a) for a Qualified Plan, 403(b) for a 403(b) Plan, 408(k) for a SEP, and 408(p) for a SIMPLE IRA Plan (including Code provisions relating to rollovers). Therefore, the Plan Sponsor must also correct all other failures in accordance with this revenue procedure.

(4) If correction is accomplished under VCP or Audit CAP in accordance with the requirements of this section 6.03, then any rollovers made from the plan pursuant to a distributable event are deemed to have been made from an eligible retirement plan under § 402(c)(8)(B) for the purpose of determining whether the amounts qualify as an eligible rollover distribution under § 402(c) or 403(b)(8) (including the determination of excess contributions that are subject to the § 4973 excise tax).

2013–4 I.R.B. 335 January 22, 2013

.04 Correction of a failure to obtain spousal consent . (1) Normally, the correction method under VCP for a failure to obtain spousal consent for a distribution that is subject to the spousal consent rules under §§ 401(a)(11) and 417 is similar to the correction method described in Appendix A, section .07. The Plan Sponsor must notify the affected participant and spouse (to whom the participant was married at the time of the distribution), so that the spouse can provide spousal consent to the distribution actually made or the participant may repay the distribution and receive a qualified joint and survivor annuity.

(2)(a) As alternatives to the correction method in section 6.04(1), correction for a failure to obtain spousal consent may be made under either section 6.04(2)(b) or section 6.04(2)(c).

(b) In the event that spousal consent to the prior distribution is not obtained ( e.g., because the spouse chooses not to consent, the spouse does not respond to the notice, or the spouse cannot be located), the spouse is entitled to a benefit under the plan equal to the portion of the qualified joint and survivor annuity that would have been payable to the spouse upon the death of the participant had a qualified joint and survivor annuity been provided to the participant under the plan at the annuity starting date for the prior distribution. Such spousal benefit must be provided if a claim is made by the spouse.

(c) In the event that spousal consent to the prior distribution is not obtained, the plan may offer the spouse the choice between (i) the survivor annuity benefit described in section 6.04(2)(b) or (ii) a single-sum payment equal to the actuarial present value of that survivor annuity benefit (calculated using the applicable interest rate and mortality table under § 417(e)(3)). Any such single-sum payment is treated in the same manner as a distribution under § 402(c)(9) for purposes of rolling over the payment to an IRA or other eligible retirement plan. In the event that the plan is subject to a restriction on the payment of single sums pursuant to § 436(d) at the time the plan offers this choice to the spouse and the spouse elects to receive a single-sum payment, the plan sponsor must contribute to the plan the applicable amount under section 6.02(4)(e)(ii)(A).

.05 Submission of a determination letter application . (1) In general . This section 6.05 sets forth the situations in which a determination letter application is required to be submitted as part of the correction of a Qualification Failure if the correction includes a plan amendment. If a determination letter application is required under this section 6.05, then, unless otherwise specified in this revenue procedure, the provisions of Rev. Proc. 2007–44 will apply. Thus, for example, in the case of an ongoing individually designed plan, a determination letter application will be reviewed with respect to all items included in the Cumulative List (as defined in Rev. Proc. 2007–44) that would apply to the remedial amendment cycle during which the determination letter is filed. Notwithstanding any other part of this section 6.05, a determination letter application is not required and may not be submitted with the VCP submission if (a) the correction by plan amendment is achieved through (i) the adoption of an amendment that is designated as a model amendment by the Service or (ii) the adoption of a prototype or volume submitter plan with an opinion or advisory letter as provided in Rev. Proc. 2012–6, 2012–1 I.R.B. 197, on which the Plan Sponsor has reliance (or is treated as having reliance pursuant to section 6.05(5) below), or (b) the failure corrected is a Demographic Failure.

(2) Determination letter application required . (a) VCP and Audit CAP . (i) Operational fail- ure corrected by plan amendment during on-cycle year. Except as provided in section 6.05(1), to correct an Operational Failure that includes a plan amendment (in a case where the Plan Sponsor submits the failure under VCP or corrects the failure under Audit CAP during an on-cycle year or in connection with a plan termination), a determination letter application is required. An “on-cycle year” means the last 12 months of the plan’s remedial amendment cycle set forth in Rev. Proc. 2007–44.

(ii) Nonamender failure . Except as provided in section 6.05(1) and (3)(a), a determination letter application is required in order to correct a nonamender failure under VCP or Audit CAP, whether or not the plan is submitted under VCP or corrected under Audit CAP during an on-cycle year. For this purpose, the term “nonamender failure” means a failure to amend the plan

January 22, 2013 336 2013–4 I.R.B.

to correct a disqualifying provision described in § 1.401(b)–1(b) within the applicable remedial amendment period. In general, a disqualifying provision includes a provision in the plan document that violates a qualification requirement of the Code or the absence of a provision that causes the plan to fail to satisfy a qualification requirement of the Code. A disqualifying provision also includes any provision designated by the Commissioner as a disqualifying provision under § 1.401(b)–1(b)(3).

(b) SCP . Except as provided in section 6.05(1), in the case of any correction of an Operational Failure through plan amendment under SCP that is permitted under section 4.05(2) of this revenue procedure, a Plan Sponsor must submit a determination letter application for the plan, including the corrective plan amendment, during the plan’s next on-cycle year, or if earlier, in connection with the plan’s termination. The determination letter application should be mailed to the address provided in the instructions for the applicable Form 5300, 5307, or 5310. As part of the determination letter submission, the cover letter must identify the amendment as a corrective amendment under SCP. In addition, the Plan Sponsor must include in the cover letter to the application: (1) a statement that neither the plan nor the Plan Sponsor has been a party to an abusive tax avoidance transaction (as defined in section 4.13(2) of this revenue procedure); or (2) a brief identification of any abusive tax avoidance transaction to which the plan or the Plan Sponsor has been a party.

(3) Determination Letter application not required or permitted . (a) Failure to adopt timely good faith amendments, interim amendments, or amendments required to implement optional law changes before the expiration of the plan’s remedial amendment period as determined under Rev. Proc. 2007–44 . (i) In general . The provisions of this section 6.05(3)(a) are applicable with respect to a failure to adopt timely good faith, interim, or optional law change amendments that is corrected ( i.e., corrective amendments are adopted by the employer) prior to the plan’s first on-cycle year following the date by which any such amendment should have been adopted pursuant to section 5.05 of Rev. Proc. 2007–44. If a Plan Sponsor submits a failure under VCP or corrects a failure under Audit CAP to adopt timely good faith amendments, interim amendments, or timely amendments to the plan to implement optional law changes, then a determination letter application is not required and may not be submitted with the VCP submission or as part of the correction of the failure under Audit CAP.

(ii) Definitions . For purposes of this revenue procedure:

(1) “Good faith amendments” include the EGTRRA good faith amendments described in Notice 2001–42, 2001–2 C.B. 70, the amendment required for the plan to comply with the final regulations under § 401(a)(9) of the Code (see Rev. Proc. 2002–29, 2002–1 C.B. 1176, as modified by Rev. Proc. 2003–10, 2003–1 C.B. 259), the amendment updating the mortality table to reflect the guidance in Rev. Rul. 2001–62, 2001–2 C.B. 632, and the amendment updating the definition of compensation, for purposes of § 415(c)(3), to include “deemed § 125 compensation” pursuant to Rev. Rul. 2002–27, 2002–1 C.B. 925,

(2) “Interim amendments” are interim amendments within the meaning of section 5.01 of Rev. Proc. 2007–44, and

(3) “Optional law changes” refer to changes in statutes, regulations, or other published guidance that are not required to preserve the plan’s qualified status, but are implemented at the Plan Sponsor’s discretion, other than amendments that are integral to plan provisions that are disqualifying provisions under section 5.01(1) of Rev. Proc. 2007–44.

(iii) Example . An example of an optional law change is the expansion of permitted safe harbor hardship events as provided in section 826 of the Pension Protection Act, 2006, P.L. 109–280 (“PPA ’06”) and Notice 2007–7 to permit a plan to treat a participant’s beneficiary under the plan the same as the participant’s spouse or dependent in determining whether the participant has incurred a hardship or unforeseeable financial emergency. The Plan Sponsor may amend the plan to permit hardship distributions pursuant to any or all of the events provided for in the previous sentence. However, the plan amendment is not required to preserve the plan’s qualified status.

(b) Issuance of a compliance statement . The issuance of a compliance statement (under VCP) or closing agreement (under Audit CAP) with respect to failures described in paragraph 6.05(3)(a) results in the corrective amendments being treated as if they had been adopted timely

2013–4 I.R.B. 337 January 22, 2013

for the purpose of determining the availability of the extended remedial amendment period described in section 5.03 of Rev. Proc. 2007–44. However, the issuance of such a compliance statement or closing agreement does not constitute a determination as to whether the form of the plan amendment complies with the change in qualification requirement.

(c) Operational Failures corrected through plan amendment under VCP and Audit CAP during an off-cycle year . If, during an off-cycle year, a Plan Sponsor submits an Operational Failure under VCP or corrects such a failure under Audit CAP, then a determination letter application is not required and may not be submitted with the VCP submission or as part of the correction of the failure under Audit CAP. If the plan amendment is accepted as a proper correction for an Operational Failure, the compliance statement under VCP or closing agreement issued under Audit CAP constitutes a determination on the effect of the plan amendment on the qualification of the plan. The reliance provided by a compliance statement or closing agreement is limited to the specific failures and years specified and does not provide reliance for any other failure or year. Except as provided in section 6.05(1), with respect to correction of an Operational Failure through plan amendment, the compliance statement issued under VCP or closing agreement issued under Audit CAP is subject to the condition that the amendment be submitted as part of a determination letter submission during the plan’s next on-cycle year, or, if earlier, in connection with the plan’s termination, and that a favorable determination letter be issued with respect to the plan. The determination letter application should be mailed to the address listed in the instructions of the applicable Form 5300, 5307, or 5310 and should include a copy of the related compliance statement or closing agreement. A Plan Sponsor that corrects an Operational Failure through a plan amendment under Audit CAP during an off-cycle year should also include a copy of the closing agreement when submitting a determination letter application during the plan’s next on-cycle year, or if earlier, in connection with the plan’s termination.

(d) Failure to adopt amendments required under the terms of a favorable determination letter . If a Plan Sponsor failed to adopt an amendment (upon which the favorable letter was conditioned) within the applicable remedial amendment period specified in the determination letter and the Plan Sponsor submits such failure under VCP, then a determination letter application is not required and should not be submitted with the VCP submission.

(4) Determination letter applications optional under EPCRS . A Plan Sponsor may submit a determination letter application with respect to a correction through plan amendment prior to the plan’s on-cycle year if the plan would be given the same priority as an on-cycle filing pursuant to sections 14.02 and 14.03 of Rev. Proc. 2007–44, (relating to certain new plans, terminating plans, and off-cycle applications submitted in accordance with published guidance issued by the Service specifying such submission, and in the case of urgent business need). Determination letter requests submitted pursuant to this section 6.05(4) must contain a written justification as to the eligibility of the plan under section 14.02 or 14.03 of Rev. Proc. 2007–44 and this section 6.05(4). In the case of urgent business need, the Service will consider such requests based on the facts and circumstances.

(5) Corrective amendments to pre-approved plans . (a) VCP and Audit CAP . Generally, under VCP or Audit CAP, a Plan Sponsor that is a pre-approved plan adopter is able to amend its plan to correct a Qualification Failure (provided the amendment satisfies the requirements of the Code). In some cases, the corrective amendment is not provided for among plan provision options that were pre-approved when the opinion or advisory letter was issued with respect to the plan. As a result, adopting such a corrective amendment would cause the Plan Sponsor to lose reliance on the plan’s opinion or advisory letter, except in the limited circumstances provided in this section 6.05(5).

(b) Pre-approved plans . In the case of a pre-approved plan (that is, a master and prototype or volume submitter plan), the adoption of a plan provision not provided for in the adoption agreement which is required to correct a failure under VCP or Audit CAP will not cause the Plan Sponsor to lose its reliance on the plan’s opinion or advisory letter, provided that: (i) the corrective amendment would otherwise be permitted under the rules for pre-approved plans and (ii) no other modification has been made to the plan that would cause the plan to lose its

January 22, 2013 338 2013–4 I.R.B.

reliance on the opinion or advisory letter. If these conditions are satisfied, the Plan Sponsor will be allowed to continue to rely on the plan’s opinion or advisory letter. In addition, the adoption of the corrective amendment will not cause the plan to lose its eligibility to remain within the six-year remedial amendment cycle provided for in Rev. Proc. 2007–44 on a continuing basis until the expiration of the next six-year remedial amendment cycle described in section 18.01 of Rev. Proc. 2007–44.

(6) Internal Revenue Service discretion . Notwithstanding any other provision of section 6.05 of this revenue procedure, the Service reserves the right to require the submission of a determination letter application with respect to any amendment proposed or adopted to correct any Qualification Failure under VCP or Audit CAP.

.06 Special rules relating to Excess Amounts . (1) Treatment of Excess Amounts . Except as otherwise provided in section 6.02(5)(c) with respect to recovery of small Overpayments, a distribution of an Excess Amount is not eligible for the favorable tax treatment accorded to distributions from Qualified Plans or 403(b) Plans (such as eligibility for tax-free rollover). Thus, for example, if such a distribution was contributed to an 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 IRA. A distribution of an Excess Amount is generally treated in the manner described in section 3 of Rev. Proc. 92–93, 1992–2 C.B. 505 (relating to the corrective disbursement of elective deferrals). The distribution must be reported on Form 1099-R for the year of distribution with respect to each participant or beneficiary receiving such a distribution. Except as otherwise provided in section 6.02(5)(c), where an Excess Amount has been or is being distributed, the Plan Sponsor must notify the recipient that (a) an Excess Amount has been or will be distributed and (b) an Excess Amount is not eligible for favorable tax treatment accorded to distributions from an eligible retirement plan under § 402(c)(8)(B) (and, specifically, is not eligible for rollover).

(2) Correction of Excess Allocations . In general, an Excess Allocation is corrected in accordance with the Reduction of Account Balance Correction Method set forth in this paragraph. Under this method, the account balance of an employee who received an Excess Allocation is reduced by the Excess Allocation (adjusted for Earnings). If the Excess Allocation would have been allocated to other employees in the year of the failure had the failure not occurred, then that amount (adjusted for Earnings) is reallocated to those employees in accordance with the plan’s allocation formula. If the improperly allocated amount would not have been allocated to other employees absent the failure, that amount (adjusted for Earnings) is placed in a separate account that is not allocated on behalf of any participant or beneficiary (an unallocated account) established for the purpose of holding Excess Allocations, adjusted for Earnings, to be used to reduce employer contributions (other than elective deferrals) in the current year or succeeding year. While such amounts remain in the unallocated account, the employer is not permitted to make contributions to the plan other than elective deferrals. Excess Allocations that are attributable to elective deferrals or after-tax employee contributions (adjusted for Earnings) must be distributed to the participant. For qualification purposes, an Excess Allocation that is corrected pursuant to this paragraph is disregarded for purposes of §§ 402(g) and 415, the actual deferral percentage test of § 401(k)(3), and the actual contribution percentage test of § 401(m)(2). If an Excess Allocation resulting from a violation of § 415 consists of annual additions attributable to both employer contributions and elective deferrals or after-tax employee contributions, then the correction of the Excess Allocation is completed by first distributing the unmatched employee’s after-tax contributions (adjusted for Earnings) and then the unmatched employee’s elective deferrals (adjusted for Earnings). If any excess remains, and is attributable to either elective deferrals or after-tax employee contributions that are matched, the excess is apportioned first to after-tax employee contributions with the associated matching employer contributions and then to elective deferrals with the associated matching employer contributions. Any matching contribution or nonelective employer contribution (adjusted for Earnings) which constitutes an Excess Allocation is then forfeited and placed in an unallocated account established for the purpose of holding Excess Allocations to be used to reduce employer contributions in the current year and succeeding year. Such unallocated account is adjusted for

2013–4 I.R.B. 339 January 22, 2013

Earnings. While such amounts remain in the unallocated account, the employer is not permitted to make contributions (other than elective deferrals) to the plan.

(3) Correction of Overpayment (defined benefit plans) . An Overpayment from a defined benefit plan is corrected in accordance with rules similar to the Return of Overpayment and Adjustment of Future Payments correction methods described in section 2.04(1) of Appendix B.

(4) Correction of Overpayment (defined contribution plans and 403(b) Plans) . (a) In gen- eral . An Overpayment from a defined contribution plan or 403(b) Plan is corrected in accordance with the Return of Overpayment method set forth in this paragraph. Under this method, the employer takes reasonable steps to have the Overpayment, adjusted for Earnings at the plan’s earnings rate from the date of the distribution to the date of the repayment, returned by the participant or beneficiary to the plan.

(b) Make-whole contribution . To the extent the amount of an Overpayment adjusted for Earnings at the plan’s earnings rate is not repaid to the plan, the employer or another person must contribute the difference to the plan. The preceding sentence does not apply when the failure arose solely because a payment was made from the plan to a participant or beneficiary in the absence of a distributable event (but was otherwise determined in accordance with the terms of the plan ( e.g. an impermissible in-service distribution)).

(c) Unallocated account . Except as provided in section 6.06(4)(d), a corrected Overpayment, adjusted for Earnings at the plan’s earnings rate to the date of the repayment, is to be placed in an unallocated account, as described in section 6.06(2), to be used to reduce employer contributions (other than elective deferrals) in the current year and succeeding year(s) (or, if the amount would have been allocated to other eligible employees who were in the plan for the year of the failure if the failure had not occurred, then that amount is reallocated to the other eligible employees in accordance with the plan’s allocation formula).

(d) Repayment by the participant or beneficiary . To the extent an Overpayment was solely considered a premature distribution but was otherwise determined in accordance with the terms of the plan, any amount returned to the plan by the participant or beneficiary is to be allocated to his or her account.

(e) Notification of employee . Except as provided in section 6.02(5)(c) with respect to the recovery of small overpayments, the employer must notify the employee that the Overpayment was not eligible for favorable tax treatment accorded to distributions from an eligible retirement plan under § 402(c)(8)(B) (and, specifically, was not eligible for tax-free rollover).

.07 Rules relating to reporting plan loan failures . (1) General rules for loans . Unless correction is made in accordance with this section 6.07(2) or (3), a deemed distribution under § 72(p)(1) in connection with a failure relating to a loan to a participant made from a plan must be reported on Form 1099-R with respect to the affected participant and any applicable income tax withholding amount that was required to be paid in connection with the failure (see § 1.72(p)–1, Q&A–15) must be paid by the employer. As part of VCP and Audit CAP, the deemed distribution may be reported on Form 1099-R with respect to the affected participant for the year of correction (instead of the year of the failure). The relief of reporting the participant’s loan as a deemed distribution on Form 1099-R in the year of correction, as described in the preceding sentence, applies only if the Plan Sponsor specifically requests such relief.

(2) Special rules for loans . (a) In general . The correction methods set forth in section 6.07(2)(b) and (c) and section 6.07(3) are available for plan loans that do not comply with one or more requirements of § 72(p)(2) and are corrected through VCP or Audit CAP. The correction methods described in section 6.07(2)(b) and (c) and section 6.07(3) are not available if the maximum period for repayment of the loan pursuant to § 72(p)(2)(B) has expired. The Service reserves the right to limit the use of the correction methods listed in section 6.07(2)(b) and (c) and section 6.07(3) to situations that it considers appropriate; for example, where the loan failure is caused by employer action. A deemed distribution corrected under section 6.07(2)(b) or (c) or under section 6.07(3) is not required to be reported on Form 1099-R and repayments

January 22, 2013 340 2013–4 I.R.B.

made by correction under sections 6.07(2) and 6.07(3) do not result in the affected participant having additional basis in the plan for purposes of determining the tax treatment of subsequent distributions from the plan to the affected participant. The relief from reporting the participant’s loan as a deemed distribution on Form 1099-R, as described in the preceding sentence, applies only if the Plan Sponsor specifically requests such relief and provides an explanation supporting the request.

(b) Loans in excess of § 72(p)(2)(A ). A failure to comply with plan provisions requiring that loans comply with § 72(p)(2)(A) may be corrected by a corrective repayment to the plan based on the excess of the loan amount over the maximum loan amount under § 72(p)(2)(A). In the event that loan repayments were made in accordance with the amortization schedule for the loan before correction, such prior repayments may be applied (i) solely to reduce the portion of the loan that did not exceed the maximum loan amount under § 72(p)(2)(A) (so that the corrective repayment would equal the original loan excess plus interest thereon), (ii) to reduce the loan excess to the extent of the interest thereon, with the remainder of the repayments applied to reduce the portion of the loan that did not exceed the maximum loan amount under § 72(p)(2)(A) (so that the corrective repayment would equal the original loan excess), or (iii) pro rata against the loan excess and the maximum loan amount under § 72(p)(2)(A) (so that the corrective repayment would equal the outstanding balance remaining on the original loan excess on the date that corrective repayment is made). After the corrective payment is made, the loan may be reformed to amortize the remaining principal balance as of the date of repayment over the remaining period of the original loan. This is permissible as long as the recalculated payments over the remaining period would not cause the loan to violate the maximum duration permitted under § 72(p)(2)(B). The maximum duration is determined from the date the original loan was made. In addition, the amortization payments determined for the remaining period must comply with the level amortization requirements of § 72(p)(2)(C).

(c) Loan terms that do not satisfy § 72(p)(2)(B) or (C) . For a failure of loan repayment terms to provide for a repayment schedule that complies with § 72(p)(2)(B) or (C), the failure may be corrected by a reamortization of the loan balance in accordance with § 72(p)(2)(C) over the remaining period that is the maximum period that complies with § 72(p)(2)(B) measured from the original date of the loan.

(d) No requirement for plan provisions . This section 6.07 applies even if the plan does not require loans to satisfy the requirements of § 72(p)(2). However, to correct the ERISA fiduciary violations associated with the failures described in section 6.07(2)(b) and (c) and section 6.07(3) under the Department of Labor’s Voluntary Fiduciary Correction Program, the plan must contain plan provisions requiring that loans comply with § 72(p)(2)(A), (B), and (C).

(3) Defaulted loans . A failure to repay the loan in accordance with the loan terms where the terms satisfy § 72(p)(2) may be corrected by (i) a single-sum repayment equal to the additional repayments that the affected participant would have made to the plan if there had been no failure to repay the plan, plus interest accrued on the missed repayments, (ii) reamortizing the outstanding balance of the loan, including accrued interest, over the remaining payment schedule of the original term of the loan or the period remaining had the loan been amortized over the maximum period that complies with § 72(p)(2)(B), measured from the original date of the loan, or (iii) any combination of (i) or (ii).

.08 Correction under statute or regulations . Generally, none of the correction programs are available to correct failures that can be corrected under the Code and related regulations. For example, as a general rule, a Plan Document Failure that is a disqualifying provision for which the remedial amendment period under § 401(b) has not expired can be corrected under provisions of the Code through retroactive remedial amendment.

.09 Matters subject to excise or other taxes . (1) General rule . Except as provided in this revenue procedure, the correction programs are not available for events for which the Code provides tax consequences other than plan disqualification (such as the imposition of an excise tax or additional income tax). For example, funding deficiencies (failures to make the required

2013–4 I.R.B. 341 January 22, 2013

contributions to a plan subject to § 412), prohibited transactions, and failures to file the Form 5500 series cannot be corrected under this revenue procedure.

(2) Section 4974 . As part of VCP and Audit CAP, if a failure involves the failure to satisfy the minimum required distribution requirements of § 401(a)(9), in appropriate cases, the Service will waive the excise tax under § 4974 applicable to plan participants or beneficiaries. The waiver will be included in the compliance statement or in the closing agreement in the case of Audit CAP. Under VCP, the Plan Sponsor, as part of the submission, must request the waiver and, in cases where the participant subject to the excise tax is either an owner-employee as defined in § 401(c)(3) or a 10% owner of a corporation, the Plan Sponsor must also provide an explanation supporting the request. See section 12.02(2) relating to the applicable compliance fee for certain § 401(a)(9) failures. Under Audit CAP, the Plan Sponsor must make a specific request for waiver of the excise tax under § 4974. The Plan Sponsor should also provide an explanation supporting the request for a waiver. Upon reviewing the request, the reasons for the failure, and other facts or circumstances of the case under examination, the Service will determine whether it is appropriate to approve the waiver of the excise tax as part of the closing agreement negotiated under Audit CAP.

(3) Section 4972 . As part of VCP, if the failure involves a correction that requires the Plan Sponsor to make a plan contribution that is not deductible, in appropriate cases, the Service will not pursue the excise tax under § 4972 on such nondeductible contributions. The Plan Sponsor, as part of the submission must request the relief and provide an explanation supporting the request.

(4) Section 4979 . As part of VCP, if a failure results in excess contributions as defined in § 4979(c) or excess aggregate contributions as defined in § 4979(d) under a plan, in appropriate cases, the Service will not pursue the excise tax under § 4979, e.g., where correction is made for any case in which the ADP test was timely performed but, due to reliance on inaccurate data, resulted in an insufficient amount of excess elective deferrals having been distributed to HCEs. The Plan Sponsor, as part of the submission, must request the relief and provide an explanation supporting the request.

(5) Section 4973 . Subject to section 6.03(4), as part of VCP, in appropriate cases, the Service will not pursue the excise tax under § 4973 relating to excess contributions made to a 403(b) Plan or IRA under any of the following circumstances:

(a) As part of the proposed correction for Overpayments, the participant or beneficiary (“recipient”) removes the Overpayment (adjusted for Earnings) from the recipient’s 403(b) Plan or IRA and returns that amount to the plan.

(b) As part of the proposed correction for Excess Amounts, the recipient removes the Excess Amount (adjusted for Earnings) from the recipient’s 403(b) Plan or IRA and reports that amount (reduced by any applicable after-tax employee contribution) as a taxable distribution for the year in which the Excess Amount (adjusted for Earnings) is removed from the recipient’s IRA. The amount removed is generally taxed in a manner that is similar to the manner in which the corrective disbursement of elective deferrals is taxed, as described in section 3 of Rev. Proc. 92–93.

(c) The Plan Sponsor, as part of the submission, must request relief from the § 4973 excise tax and provide an explanation supporting the request.

(6) Section 72(t) . As part of VCP, in appropriate cases, the Service will not pursue the 10% additional income tax under § 72(t) (or will pursue only a portion thereof) if, as part of the proposed correction of an Overpayment that occurred solely because an employee received a distribution from his or her vested account balance that was not a distributable event, the participant or beneficiary (“recipient”) returns the improperly distributed amount, adjusted for Earnings, to the plan. If the improperly distributed amount was rolled over to the recipient’s IRA, then correction will include removing the amount improperly distributed and rolled over (adjusted for Earnings) from the recipient’s IRA and returning that amount to the plan. In appropriate cases, as a condition for not pursuing all or a portion of the additional tax, the

January 22, 2013 342 2013–4 I.R.B.

Service may require the Plan Sponsor to pay an additional fee under VCP not in excess of the 10% additional income tax under § 72(t). The Plan Sponsor, as part of the submission, must request the relief and provide an explanation supporting the request.

.10 Correction for 403(b) Plans . (1) Correction for 403(b) Plans generally . Except as provided in sections 6.03(2) and 6.10(2), the correction for a 403(b) Plan is expected to be the same as the correction required for a Qualified Plan with the same Failure ( i.e., Plan Document Failure, Operational Failure, Demographic Failure, and Employer Eligibility Failure).

(2) Special correction principles . In general, a 403(b) Failure can be corrected by treating a contract as a § 403(c) annuity contract (or, if applicable, as an amount to which § 61, 83, or 402(b) applies), such as for purposes of correcting an Employer Eligibility Failure, a failure to provide for full vesting (including a failure to maintain a separate account), or an exchange made to a vendor which is not part of the plan (and for which there is no information sharing agreement). In addition, for purposes of this revenue procedure, pending additional guidance, a 403(b) Plan generally will be treated as having a Favorable Letter if either (a) the employer is an eligible employer and, on or before December 31, 2009 (or the date a 403(b) Plan is established, if later), the employer has adopted a written 403(b) Plan that is intended to satisfy § 403(b) (including the regulations thereunder) effective as of January 1, 2009 (or the first day of the plan year in which a 403(b) Plan is established, if later), or (b) the employer has failed to adopt a written 403(b) Plan timely and corrects the failure in accordance with section 6.10(3) below. In addition, for purposes of section 4.04 (requiring that the Plan Sponsor or administrator of the plan have established practices and procedures reasonably designed to promote and facilitate overall compliance with applicable Code requirements in order to be eligible for SCP to be available to correct Operational Failures), the requirement to have established practices and procedures only applies for failures during periods after December 31, 2009.

(3) Correction for failure to adopt a written 403(b) Plan timely . A failure to adopt a written 403(b) Plan timely in accordance with the final regulations under § 403(b) and Notice 2009–3 may be corrected under VCP and Audit CAP. The issuance of a compliance statement or closing agreement for the failure to adopt a written 403(b) Plan timely will result in the written 403(b) Plan being treated as if it had been adopted timely for the purpose of making available the extended remedial amendment period set forth in Announcement 2009–89. However, the issuance of a compliance statement or closing agreement does not constitute a determination as to whether the written plan, as drafted, complies with the applicable requirements of § 403(b) of the Code and the final 403(b) regulations.

.11 Correction for SEPs and SIMPLE IRA Plans . (1) Correction for SEPs and SIMPLE IRA Plans generally . Generally, the correction for a SEP or a SIMPLE IRA Plan is expected to be similar to the correction required for a Qualified Plan with a similar Qualification Failure (i.e., Plan Document Failure, Operational Failure, Demographic Failure, and Employer Eligibility Failure).

(2) Special correction for SEPs and SIMPLE IRA Plans . In any case in which correction under section 6.11(1) is not feasible for a SEP or SIMPLE IRA Plan or in any other case determined by the Service in its discretion (including failures relating to § 402(g), 415, or 401(a)(17), failures relating to deferral percentages, discontinuance of contributions to a SARSEP or SIMPLE IRA Plan, and retention of Excess Amounts for cases in which there has been no violation of a statutory limitation with respect to a SEP or SIMPLE IRA Plan), the Service may provide for a different correction. See section 12.06(2) for a special fee that may apply in such a case.

(3 ) Correction of failure to satisfy deferral percentage test . If the failure involves a violation of the deferral percentage test under § 408(k)(6)(A)(iii) applicable to a SARSEP, the failure may be corrected in either of the following ways:

(a) The Plan Sponsor may make contributions that are 100% vested to all eligible nonhighly compensated employees (to the extent permitted by § 415) necessary to raise the deferral percentage to an amount sufficient to pass the test. This amount may be calculated as the same percentage of compensation (regardless of the terms of the SEP).

2013–4 I.R.B. 343 January 22, 2013

(b) The Plan Sponsor may effect distribution of excess contributions, adjusted for Earnings through the date of correction, to highly compensated employees to correct the failure. The Plan Sponsor must also contribute to the SEP an amount equal to the total amount distributed. This amount must be allocated to (i) current employees who were nonhighly compensated employees in the year of the failure, (ii) current nonhighly compensated employees who were nonhighly compensated employees in the year of the failure, or (iii) employees (both current and former) who were nonhighly compensated employees in the year of the failure.

(4) Treatment of undercontributions to a SEP or a SIMPLE IRA Plan . (a) Make-up contri- butions; Earnings . The Plan Sponsor should correct undercontributions to a SEP or a SIMPLE IRA Plan by contributing make-up amounts that are fully vested, adjusted for Earnings from the date of the failure to the date of correction.

(b) Earnings adjustment methods . Insofar as SEP and SIMPLE IRA Plan assets are held in IRAs, there is no earnings rate under the SEP or SIMPLE IRA Plan as a whole. If it is not feasible to make a reasonable estimate of what the actual investment results would have been, a reasonable interest rate may be used.

(5) Treatment of Excess Amounts under a SEP or a SIMPLE IRA Plan . (a) Distribution of Excess Amounts . For purposes of this section 6.11, an Excess Amount is an amount contributed on behalf of an employee that is in excess of an employee’s benefit under the plan, or an elective deferral in excess of the limitations of § 402(g) or 408(k)(6)(A)(iii). If an Excess Amount is attributable to elective deferrals, the Plan Sponsor may effect distribution of the Excess Amount, adjusted for Earnings through the date of correction, to the affected participant. The amount distributed to the affected participant is includible in gross income in the year of distribution. The distribution is reported on Form 1099-R for the year of distribution with respect to each participant receiving the distribution. In addition, the Plan Sponsor must inform affected participants that the distribution of an Excess Amount is not eligible for favorable tax treatment accorded to distributions from a SEP or a SIMPLE IRA Plan (and, specifically, is not eligible for tax-free rollover). If the Excess Amount is attributable to employer contributions, the Plan Sponsor may effect distribution of the employer Excess Amount, adjusted for Earnings through the date of correction, to the Plan Sponsor. The amount distributed to the Plan Sponsor is not includible in the gross income of the affected participant. The Plan Sponsor is not entitled to a deduction for such employer Excess Amount. The distribution is reported on Form 1099-R issued to the participant indicating the taxable amount as zero.

(b) Retention of Excess Amounts . If an Excess Amount is retained in the SEP or SIMPLE IRA Plan under this section 6.11(5), a special fee, in addition to the VCP submission fee, will apply. See section 12.06(2) for the special fee. The Plan Sponsor is not entitled to a deduction for an Excess Amount retained in the SEP or SIMPLE IRA Plan. In the case of an Excess Amount retained in a SEP that is attributable to a § 415 failure, the Excess Amount, adjusted for Earnings through the date of correction, must reduce an affected participant’s applicable § 415 limit for the year following the year of correction (or for the year of correction if the Plan Sponsor so chooses), and subsequent years, until the excess is eliminated.

(c) De minimis Excess Amounts. If the total Excess Amount in a SEP or SIMPLE IRA Plan, whether attributable to elective deferrals or employer contributions, is $100 or less, the Plan Sponsor is not required to distribute the Excess Amount and the special fee described in section 12.06(2) does not apply.

.12 Confidentiality and disclosure . Because each correction program relates directly to the enforcement of Code requirements, the information received or generated by the Service under the program is subject to the confidentiality requirements of § 6103 and is not a written determination within the meaning of § 6110.

.13 No effect on other law . Correction under these programs has no effect on the rights of any party under any other law, including Title I of ERISA. The Department of Labor maintains a Voluntary Fiduciary Correction Program under which certain ERISA fiduciary violations may

January 22, 2013 344 2013–4 I.R.B.

be corrected. The Department of Labor also maintains a Delinquent Filer Voluntary Compliance Program under which certain failures to comply with the annual reporting requirements (Form 5500 series) under ERISA may be corrected.