Q:What are the advantages of being represented by counsel in connection with correcting retirement plan errors or mistakes?
A: A retirement plan that experiences errors or mistakes may become "disqualified". If a retirement plan becomes disqualified, the plan's trust loses its tax-exempt status, employees include certain amounts in gross income, and an employer's contribution deductions are limited.
No one wants to make mistakes with a retirement plan, but unfortunately mistakes happen. The good news is the IRS understands this and maintains a plan correction program for certain types of retirement plans. The Employee Plans Compliance Resolution System ("EPCRS"), is a comprehensive correction program for retirement plans, allowing for errors or mistakes to be corrected and thus avoid the consequences of a plan disqualification. Under EPCRS, the IRS provides employers with three correction programs: (i) Self Correction Program; (ii) Voluntary Correction Program; and(iii) Audit CAP. Getting in front of plan errors or mistakes sooner rather than later is key as that often dictates which correction program is applicable. Correcting plan errors or mistakes allows the plan to continue to provide employees with retirement benefits on a tax-favored basis. Having a professional experienced in the application of EPCRS can assist in identifying which correction program may be applicable and maneuvering around any potential hurdles, including communicating with the IRS.
an attorney at the law firm of Lukins & Annis, where her practice includes Business & Corporate, Estate Planning, Real Estate, and Tax.
Published in the February 2, 2017 issue of the Spokane Journal of Business .