IRS Sets New Fees for Correcting Retirement Plan Errors

Charges for using the Voluntary Correction Program are now based on plan asset size

Stephen Miller, CEBS By Stephen Miller, CEBS January 26, 2018

Update: No Relief for 2019 Fees

Each January, the IRS announced how it structures the fees it charges retirement plan sponsors when they use the Voluntary Correction Program (VCP). The update for 2019 in Revenue Procedure 2019-04 does not change the VCP fees, meaning that the fees listed for 2018 remain in effect for 2019. See the SHRM Online article IRS Offers No Fee Relief for Correcting Retirement Plan Errors.

Effective for 2018, the IRS altered how it structures the fees it charges retirement plan sponsors when they use the Voluntary Correction Program (VCP).

The IRS imposes fees on plan sponsors that request correction of an operational error under the Employee Plans Compliance Resolution System (EPCRS). The VCP is one of three EPCRS programs for correcting retirement plan errors. The other two are the Self-Correction Program and the Audit Closing Agreement Program.

Each January, the IRS issues the EPCRS user fee schedules for the year. For the 2018 schedule, detailed in Revenue Procedure 2018-4, the IRS made significant changes to the fees that will be charged for corrections made with a VCP filing.

2018 Fees Have Fewer Tiers but Can Be More Costly

"Previously, such fees were determined by the number of a plan's participants and were limited to $15,000, with the availability of reduced fees for certain streamlined filings," commented Robert Wynne, an attorney in the Richmond, Va., office of law firm McGuireWoods.

There had been six fee levels ranging from $500 for a plan with 20 or fewer participants up to $15,000 for a plan with over 10,000 participants, he explained.

"Effective for submissions made on or after Jan. 2, 2018, however, VCP submission fees are determined by net plan assets and are limited to $3,500, though reduced fees for streamlined filings are no longer available," nor are reduced fees for failure to satisfy the minimum-distribution requirements, participant loan failures or plan amendment failures.

The updated schedule for 2018 looks like this:

For plans with assets of: The VCP filing fee is:
$500,000 or less$1,500
Over $500,000 to $10,000,000$3,000
Over $10,000,000$3,500

"Generally, net plan assets are based on the end-of-year net assets of a plan as reported on its most recently filed Form 5500 series return," Wynne said. "Plan sponsors considering whether to submit an application under the VCP will need to factor in the changes in fees."

[SHRM members-only toolkit: Designing and Administering Defined Contribution Retirement Plans]

Some Will Pay More, Others Less

In a blog post, Julia Zuckerman, J.D., a director at New York City-based Conduent HR Services, and Marjorie Martin, principal at Conduent's Knowledge Resource Center, identified plan sponsors that would be "winners" and "losers" under the new VCP fee structure.

Among the winners, they noted, would be:

  • Plans covering over 10,000 participants with more than $10 million in assets, which would have paid $15,000 under the 2017 schedule but pay only $3,500 under the 2018 schedule.
  • Plans that had been subject to the $5,000 (for 101 to 1,000 participants) or $10,000 (1,001 to 10,000 participants) categories under the old fee schedule, but are now subject to the $3,500 fee maximum.

But there are also losers, Zuckerman and Martin pointed out, such as:

  • Plans covering fewer than 101 participants that paid $500 or $750, depending on the number of participants, under the 2017 schedule and will now pay at least $1,500, or $3,000 if the plan assets are over $500,000, under the 2018 schedule.
  • Plans with minimum-required-distribution failures for 300 or fewer participants, which will pay at least twice as much as last year. Under the old schedule, "if no more than 150 participants were affected, the tab was just $500. It will now be at least $1,500," Zuckerman and Martin pointed out.
  • Plans with over 100 plan loan errors, which would have paid $2,000 or $3,000 under the old schedule. Given that these plans are likely to fall in the over-$10 million asset-value category, they'll now pay $3,500.

"In light of the new 2018 fee schedule, plan administrators will want to ensure zero tolerance for loan, minimum-distribution, and plan-amendment failures that are now more costly to fix," Zuckerman and Martin noted. "On the other hand, because large plan sponsors will pay less than before due to other failures such as overpayments of benefits, they may more frequently opt to use VCP filing rather than the self-correction method."

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