IRS Makes it Easier to Resolve Plan Loan Problems

In Revenue Procedure 2015-27, the IRS said it is reducing voluntary correction program (VCP) compliance fees relating to failures to meet requirements with respect to participant loans. The IRS also clarified that, for certain overpayments, a plan may use correction methods other than the correction methods set forth in sections 6.06(3) and 6.06(4) of Rev. Proc. 2013-12.

According to the IRS, some plans may be interpreting the correction rules as requiring a demand for recoupment from plan participants and beneficiaries in all cases. However, depending on the facts and circumstances, this may not be the case.

Under correction rules, the employer is directed to have taken reasonable steps to have the overpayment returned to the plan. The IRS said it has learned that some plans have demanded recoupment of large amounts from plan participants and beneficiaries on account of plan administration errors made over lengthy periods of time, and that plan participants and beneficiaries, particularly those who are older individuals, may have financial difficulty meeting some corrective actions that have been sought by plan administrators, including the return of overpayments with substantial accumulated interest.

The IRS explains that, depending on the nature of the overpayment failure (such as an overpayment failure resulting from a benefit calculation error), an appropriate correction may include having the employer contribute the amount of the overpayment (with appropriate interest) to the plan in lieu of seeking recoupment from plan participants and beneficiaries. The IRS also cited as an example of an appropriate correction method a plan sponsor adopting a retroactive amendment to conform the plan document to the plan’s operations.

Rev. Proc. 2015-27 generally is effective July 1, 2015. However, plan sponsors may apply it after March 27, 2015.

The IRS also requests comments about this revenue procedure. Comments are due by July 20, 2015, and may be submitted in the following manners:

In writing to: CC:PA:LPD:PR, (Rev. Proc. 2015-27), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, D.C. 20044.

By hand delivery Monday through Friday between 8:00 a.m. and 4:00 p.m. to: Internal Revenue Service, CC:PA:LPD:PR, (Rev. Proc. 2015-27), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington DC.

Electronically at [email protected] (Rev. Proc. 2015-27).