Midwest Regional Conference, ESOP Operational Errors, Etc.

The Iowa/Nebraska, Minnesota/Dakota and Wisconsin chapters of The ESOP Association will be hosting the first ever Midwest Regional Conference on September 24 – 25, 2009 at the Ramada Mall of America in Bloomington, MN. I am sure this is going to be a great conference! There will be more information released as we get closer to those dates.

I will be speaking on the topic of ESOP operational errors and how to correct such errors.  So I thought it might be a good topic to explore here as well.

Anyone involved with a qualified plan can easily attest to the fact that errors happen. They just do, no matter how good your service providers are. No matter how experienced your staff is. Errors do happen. The bad news is that practically any error has the potential to cause a plan disqualification. Fortunately, the IRS has recognized this and established a group of formal programs under "EPCRS" for plan sponsors to voluntarily correct their plan failures and avoid disqualification.  EPCRS stands for Employee Plans Compliance Resolutions System.

EPCRS has different subprograms for different types of failures. For each of the subprograms some general correction principles apply across the board including:

• The correction should be reasonable and appropriate for the failure, but there may be more than one reasonable and appropriate correction method.
• The correction method should, to the extent possible, resemble one already provided for in the Tax Code, IRS Regulations, or other guidance of general applicability.
• The correction method should keep plan assets in the plan.
• Corrective allocations should come only from employer contributions.
• Correction must be made for all affected years, even those closed under the statute of limitations.
 
The key is that the IRS is encouraging plan sponsors to voluntarily correct any operational errors on their own. The potential bad consequences can be significantly reduced through this voluntary correction.

I plan to discuss some of the more common operational errors and how they might be corrected using EPCRS here in future posts.