Seizing the Moment: Enhancing Retirement Plan Compliance through SECURE 2.0 and IRS Notice 2023-43
This is an ideal period for plan sponsors to place a renewed emphasis on the assessment and rectification of eligible plan discrepancies. The integration of SECURE 2.0 with the year-end 2022 Consolidated Appropriations Act introduces an expanded realm of retirement savings possibilities for Americans. Alongside this, new avenues for plan sponsors to rectify plan errors are made available, liberating them from the conventional fees and procedures associated with IRS intervention. This initiative is supported by IRS Notice 2023-43, which delivers guidance to plan sponsors adopting self-correction procedures within the Employee Plans Compliance Resolution System (EPCRS). This discourse accentuates the key facets of this insightful guidance.
CONTEXT The latitude for plan sponsors to undertake self-correction measures has reached an unprecedented scale. SECURE 2.0 has ushered in a dimension where any inadvertent lapses in compliance with the regulations governing sections 401(a), 403(a), 403(b), 408(p), or 408(k) can be autonomously rectified via the Employee Plans Compliance Resolution System. There are exceptions, such as instances where the lapse was previously identified by the Secretary before any indications of a specific commitment to implement self-correction arise or where self-correction is not effectuated within a reasonable timeframe subsequent to detection. A further exemption pertains to failures of an egregious nature or those linked to the misdirection or misuse of plan assets or to tax evasion schemes.
The Secretary of the Treasury is mandated to revise existing EPCRS guidelines, as specified in Rev. Proc. 2021-30, by the culmination of 2024. In the interim, a conscientious self-correction can be grounded on a principled and reasonable interpretation of the current regulations.
CORE DIRECTIVES The interim guidelines warrant adherence to specific conditions and account for exceptions when conducting self-correction activities. A succinct outline of these prerequisites is presented below:
Adherence to Relevant Segments of Rev. Proc. 2021-30
To ensure the correct implementation of self-correction procedures for eligible inadvertent failures, it is imperative to adhere to designated sections of prior IRS directives. This includes having established practices and protocols intended to foster overall compliance, embracing correction principles articulated in prior directives, and the discretionary use of IRS-sanctioned correction methods.
Prompt Self-Correction
The initiation of self-correction should be accomplished within a reasonable timeframe following the identification of the error. The term “reasonable period” hinges on the entirety of the circumstances, with non-eligibility lapses corrected within the 18 months following discovery being deemed reasonable. For eligibility lapses, cessation of plan contributions should be executed “as reasonably practicable” and no later than the end of the sixth month from the identification of the failure.
Explicit Commitment to Self-Correction Implementation
An opportunity for self-correction exists solely before the Secretary examines the plan or its sponsor. However, in cases where the plan sponsor has already exhibited a concrete commitment to self-correction, based on a comprehensive evaluation of circumstances, this avenue remains open. The manifestation of this commitment entails active efforts toward rectification, rather than limited to mere annual audits or general expressions of intent.
Exceptions to Self-Correction
Certain eligible inadvertent failures are deferred from self-correction until further clarification is issued. These include failures to adopt a written plan, disparities in orphan plans, substantial lapses in terminated plans, certain failures related to excess contributions, specific demographic deviations, and operational lapses affecting plan amendments.
Pending the issuance of updated guidance, plan sponsors can depend on a “good faith, reasonable interpretation” approach when engaging in self-correction activities, with meticulous documentation of the process essential in anticipation of future IRS examinations. This regulatory respite provides a unique occasion for plan sponsors to meticulously review their plans and rectify all eligible discrepancies without resorting to a Voluntary Correction Program or other forms of IRS intervention.
