ASPPA GAC Submits Comment Letter on Proposed EPCRS Changes
On March 19, 2015, the Government Affairs Committee (GAC) of the American Society of Pension Professionals & Actuaries (ASPPA) filed a comment letter
with the IRS regarding suggested changes to the Employee Plans Compliance Resolution System (EPCRS). The letter provided specific recommendations regarding operational failures related to participant loans that ASPPA believes should be eligible for correction under the Self-Correction Program (“SCP”) component of EPCRS.
ASPPA’s GAC recommended that the Service issue guidance expanding the operational failures related to participant loans that would be eligible for correction under the SCP component of EPCRS. ASPPA specifically recommended that SCP be expanded to permit:
- correction of operational errors related to plan loans in a manner that will avoid reporting the loan as a deemed distribution; and
- reporting deemed distributions under Internal Revenue Code Section 72(p) on a Form 1099-R for the year of correction rather than the year the defect arose.
Currently, even the most insignificant plan loan error can result in the plan sponsor being faced with the option of either burdening the participant by reporting the loan as a taxable deemed distribution (and related reporting obligations), or filing a submission under the Voluntary Correction Program (VCP) component of EPCRS. VCP submission fees can range as high as $12,500 (plus the costs associated with making the submission).
The burden of the first option is multiplied by the fact the loan must be reported as a deemed distribution in the year of default. This may require a participant to amend a prior year’s tax return to report and pay additional taxes, often because of an inadvertent systems error that was not the fault of the participant. For insignificant operational errors and other loan failures that are discovered and corrected quickly, this result is cumbersome and can discourage employers from continuing to maintain a loan program. For this reason, self-correction (without a VCP submission) was recommended as an alternative correction for these errors.
ASPPA also recommended that, to the extent broad expansion of SCP eligibility for plan loan failures is not provided, at a minimum, SCP should be expanded to permit correction of the following operational loan errors, (provided the error is otherwise eligible for SCP):
- form 1099-R reporting relief;
- loans with repayment errors;
- loans that exceed the maximum repayment period;
- loans that exceed the maximum loan amount;
- loans that exceed the maximum permitted number of loans outstanding; and
- loans made without spousal consent when required by the plan’s terms.
The comment letter was prepared by ASPPA GAC’s IRS Subcommittee, Frank Porter, QKA, QPA, Chairman. ASPPA looks forward to continuing the dialog with the IRS on this topic at a meeting scheduled for May of this year.Craig P. Hoffman, APM, is ASPPA’s General Counsel.