IRS INDEFINITELY EXTENDS VCR PROGRAM FOR EMPLOYEE PLANS.

Rev. Proc. 94-62

SECTION 1. PURPOSE

This revenue procedure supersedes Revenue Procedure 92-89, 1992- 2 C.B. 498, and Revenue Procedure 93-36, 1993-2 C.B. 474, concerning the Voluntary Compliance Resolution (VCR) program. Under this revenue procedure, the VCR program is extended indefinitely and will continue to be administered in the Headquarters Office. This revenue procedure also expands the types of defects that can be corrected under the Standardized VCR Procedure (SVP), modifies the VCR eligibility standards and makes other administrative and technical changes, including a change in the address for submitting all VCR requests. Finally, this revenue procedure modifies Revenue Procedure 94-6, 1994-1 I.R.B. 142, with respect to a request for a determination letter after a compliance statement has been requested. As a result of this change, plan sponsors need not complete question 14(e) of the Form 5300.

SECTION 2. BACKGROUND

.01 Establishment of VCR Program. On November 16, 1992, the Service established the VCR program as a temporary, experimental program ending on December 31, 1993. The program permits an employer to voluntarily correct operational defects in a deferred compensation plan and obtain a compliance statement that provides that the corrections are acceptable and that the Service will not pursue plan disqualification with respect to the operational defects identified in the statement.

.02 Extension of VCR Program. On September 20, 1993, Rev. Proc. 93-36 extended the expiration date of the VCR program to December 31, 1994, and added SVP, a simplified correction procedure for certain listed defects. Under SVP, a standard correction method is prescribed for specified defects.

.03 Establishment of Walk-in CAP. On January 31, 1994, Revenue Procedure 94-16, 1994-5 I.R.B. 22, established a voluntary program, the Walk-in Closing Agreement Program (Walk-in CAP), for plans or defects for which the VCR program is not available.

SECTION 3. VCR PROGRAM

.01 VCR Program extended indefinitely. The VCR program is extended indefinitely.

.02 VCR Program continued in Headquarters Office. The VCR program will continue to be administered in the Headquarters Office.

.03 Brief description of VCR Program. The VCR program permits plan sponsors (including employers, plan administrators and trustees) to correct operational plan defects that they have identified. The plan sponsor pays a fixed voluntary compliance fee (see section 9 of this revenue procedure) and receives a compliance statement (see section 12 of this revenue procedure) describing the terms of full correction. If the plan sponsor satisfies the correction terms in a timely manner, the Service will not, as an administrative matter, disqualify the plan on account of the identified and corrected defects. Because the VCR program does not arise out of an examination, consideration under the VCR program does not preclude or impede (under section 7605(b) or any administrative provisions adopted by the Service) an examination of the employer or the plan by the Service with respect to the taxable year (or years) involved with respect to matters that are outside the compliance statement.

.04 Plan sponsor must identify defects. The Service will not make any investigation or finding under the VCR program concerning whether there are operational violations of section 401(a) of the Internal Revenue Code. Thus, each item to be considered under the VCR program must be identified as an operational defect by the applicant. However, the plan sponsor's statements describing operational defects are for purposes of the VCR program only. Therefore, these statements will not be regarded by the Service as an admission of a violation for purposes of an Employee Plans Examination.

.05 VCR program limited to defects raised. The VCR program is a compliance program, but is not based upon an examination of the plan by the Service. Therefore, the Service will rely upon the statements of the plan sponsor in identifying the plan's operational defects. Only the operational defects raised by the plan sponsor, related defects, and other defects presented by the plan sponsor are addressed under the program, and only those defects will be covered by the compliance statement.

.06 Full correction required. Under the program, the plan sponsor must make full correction of all defects for all years for which the defects exist.

.07 Appropriate administrative procedures required. The Service must also be assured that the plan sponsor has initiated or will initiate administrative procedures for operating the plan so that the operational defects will not recur and the plan will be properly administered. The Service will first discuss the appropriateness of existing procedures with the plan sponsor. Where the current procedures are inadequate for operating the plan in conformance with the qualification requirements of the Code, the compliance statement will be conditioned upon the implementation of stated procedures within the stated time period. Under the VCR program, the Service reserves the right to prescribe appropriate administrative procedures in the compliance statement.

.08 Unrelated defects. If the Service discovers an unrelated plan defect while considering the voluntary request, the defect generally will be added to the defects under VCR consideration. However, the Service retains the discretion to determine that the defect is outside the scope of the voluntary request for consideration because it was not voluntarily brought forward by the employer. In this case, all aspects of the plan may be forwarded to the appropriate EP/EO Key District Office (KDO) for consideration on examination. Forwarding to the KDO will only happen in unusual circumstances.

.09 Permitted amendments. Under the VCR program, a plan sponsor may amend the plan to the extent necessary to effect correction, but may not amend the plan to bring the plan language in line with the actual operation of the plan. For example, if the plan failed to satisfy the actual deferral percentage test required under section 401(k)(3) and the employer must make qualified nonelective contributions, the plan may be amended as part of the VCR program to provide for qualified nonelective contributions. On the other hand, if the plan administrator permitted plan loans in a plan that did not permit plan loans, the defect can not be corrected by retroactively amending the plan to provide for the loans. Permission under this revenue procedure to amend the plan as needed to implement a permitted correction method is not a determination as to the qualification of the plan.

.10 Failure to reach resolution. If resolution cannot be reached because information is not timely provided to the Service or because agreement cannot be reached on correction or administrative procedures, the case may be referred to the appropriate KDO for examination consideration.

.11 Acknowledgement letter. Within 25 calendar days after the compliance statement is issued, the plan sponsor must send a signed acknowledgement letter to the Service, agreeing to the terms of the compliance statement. If the plan sponsor does not send a signed acknowledgement letter within 25 calendar days, the case may be referred to the appropriate EP/EO KDO for examination consideration. Once the compliance statement has been issued (based on the information provided) the plan sponsor cannot request a modification of the compliance terms except by a new request for a compliance statement. However, if the requested modification is minor and is postmarked no later than 25 days after the compliance statement is issued, the VCR compliance fee for the modification will be the lesser of the original compliance fee or $1,250.

.12 Verification. Once the compliance statement has been issued, the Service reserves the right to require verification that the corrections have been made and that any administrative procedures required by the statement have been implemented. This verification does not constitute an examination of the books and records of the employer or the plan (within the meaning of section 7605(b)). If the Service determines that the plan sponsor did not implement the corrections and procedures within the stated time period, the KDO may consider the issues in an examination.

.13 Use of information. If the Service issues a compliance statement, and the plan sponsor timely implements the stated corrections and procedures, information given by the plan sponsor to the Service under the VCR program will not be used as the basis of an Employee Plans examination.

.14 Excise taxes not waived. In general, excise taxes and additional taxes, to the extent applicable, are not waived merely because the underlying defect has been corrected or because the taxes result from the correction of defects under the VCR program. Thus, for example, amounts contributed in excess of the deductible limits set forth in section 404 for the tax year of the contribution may be subject to the tax set forth in section 4972.

.15 Applicability of sections 6103 and 6110. Because the VCR program is a compliance program, relating directly to the enforcement of operational qualification requirements, the information received or generated by the Service under the program is subject to the confidentiality requirements of section 6103 of the Code and is not a written determination within the meaning of section 6110.

.16 Effect of compliance statement on other law. A compliance statement issued under the VCR program constitutes a resolution under the Code of the specific operational defects identified and corrected by the plan sponsor. This resolution shall have no effect on the rights of any party under any other law, including Title I of the Employee Retirement Income Security Act of 1974.

.17 Handling of ineligible plans or defects. If a plan sponsor requests a compliance statement under the VCR program but does not have an appropriate determination letter, opinion letter or notification letter, whichever is applicable, or the defect is not operational, the submission and the compliance fee will be returned to the employer without review, and the employer will be informed of the option to voluntarily request consideration under Walk-in CAP. If a plan sponsor requests a compliance statement under the VCR program but has defects determined to be egregious, the plan sponsor will be notified of this conclusion and given 60 days to voluntarily request consideration under Walk-in CAP in the appropriate KDO. If an application is made within the 60 day period, the compliance fee will be returned. If, at the end of the 60 day period, a request for consideration under Walk-in CAP has not been received in the appropriate KDO, the VCR request will be forwarded to that KDO for examination consideration.

SECTION 4. SCOPE

.01 General scope. The Service intends to give taxpayers broad access to the VCR program. The VCR program will be available for plans or defects subject to the limitations set forth in sections 4.02 through 4.07, below.

.02 Favorable letter requirement. The VCR program is available only for an individually designed plan that has reliance on a favorable determination letter, a plan that is an adopter of a master or prototype plan with an opinion letter or a plan that is an adopter of a regional prototype plan with a notification letter. The plan is not treated as having a determination, opinion or notification letter if the plan has been substantially amended since the letter was issued.

(1) For VCR requests submitted before January 1, 1996, the plan must have received a favorable determination letter, an opinion letter or a notification letter that considered the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), the Deficit Reduction Act of 1984 (DEFRA), and the Retirement Equity Act of 1984 (REA). This generally includes any determination letter issued after 1987 (or earlier, in certain instances), including letters issued under the Tax Reform Act of 1986 (TRA'86).

(2) For VCR requests submitted on or after January 1, 1996, the plan must have a favorable determination letter, an opinion letter or a notification letter that considered TRA'86.

.03 Types of defects covered. The VCR program is available only for operational defects and is generally available for all operational defects except as specified in sections 4.02 through 4.07 of this revenue procedure. There are three typical types of defects that may affect the qualification of a plan, form defects, operational defects that arise from a failure to follow the plan terms and operational defects that arise from a change in employer demographics. First, plan provisions may not, as written, satisfy the plan qualification requirements set forth in sections 401(a), 403(a) or 404(a)(2) of the Code (a form defect). The VCR program is not available to correct a form defect. Second, a plan containing provisions that satisfy the plan qualification requirements may not be operated in accordance with those provisions (an operational defect). Failure to follow the terms of the plan is a disqualifying defect even if the operation of the plan would otherwise satisfy the qualification requirements. The VCR program is available to correct most operational defects (but see sections 4.04 and 4.05, below). Finally, a plan document may satisfy the plan qualification requirements and be operated in accordance with its terms but fail to satisfy the nondiscrimination requirements in operation because of a shift in the demographics of the employer's work force (a demographic defect). Correction of a demographic defect generally requires a substantive corrective amendment to the plan, adding more employees or increasing benefits. The VCR program is not available to correct demographic defects.

.04 Certain operational defects not covered. Certain operational defects cannot be corrected in the VCR program because they involve plans or issues that the Service deems inappropriate for the VCR program. For example, the VCR program may not be available in certain circumstances where it is not possible to obtain sufficient information to properly determine the nature or extent of the defect or insufficient information to effect proper correction. Likewise, the VCR program is not available for the defects listed below.

(1) Plans in which there are exclusive benefit violations relating to the misuse or diversion of plan assets (cases in which the Department of Labor also has jurisdiction);

(2) Plans in which the violations have been egregious. For example, if an employer has consistently and improperly covered only the highly compensated employees or if a contribution to a defined contribution plan for a highly compensated individual is several times greater than the dollar limit set forth in section 415, the violation would be considered egregious;

(3) Plans for which trusts, although required, were not created or were not maintained; and

(4) Terminated plans that no longer have trusts or plan assets.

.05 Other defects not covered. In addition, the VCR program is not available for operational matters that result in excise tax or additional income tax rather than plan disqualification, because the statutes already provide specific tailored sanctions for those defects. For example, funding deficiencies (failures to make the required contributions to a plan subject to section 412), prohibited transactions, and failures to file the Form 5500 cannot be corrected in the VCR program. However, if a defect results in disqualification and the imposition of a tax (for example, if the plan's loan language was not followed and the resulting loans did not satisfy section 72(p)(2)), the VCR program will be available to correct the defect but the excise or additional income taxes will generally still apply. However, if the defect is a failure to satisfy the minimum distribution requirements of section 401(a)(9), the Service may enter into a closing agreement, as part of the VCR program, with respect to the excise tax under section 4974 applicable to the plan participants.

.06 Correction not possible under regulations. The VCR program is only available for plans with operational defects that cannot be corrected under the Code and related regulations. For example, as a general rule, a disqualifying provision to which the remedial amendment period under section 401(b) for TRA'86, as extended by Notice 92-36, 1992-2 C.B. 364, applies cannot be corrected under the VCR program. However, if a plan has been properly amended for TRA'86 and the other statutory changes eligible for the remedial amendment period and the operational defect arises after the amendment has become effective, an operational defect arising out of the failure to follow the amendment may be corrected under the VCR program.

.07 Plans under examination. A plan that is under an Employee Plans examination (that is, an examination of a Form 5500 series return) is not eligible for the VCR program.

(1) A plan that is under an Employee Plans examination includes any plan for which the plan sponsor, or a representative, has received verbal or written notification from the EP/EO Division of an impending Employee Plans examination, or of an impending referral from another part of the Service for an Employee Plans examination, and also includes any plan that has been under an Employee Plans examination and is now in Appeals or in litigation for issues raised in an Employee Plans examination.

(2) The term Employee Plans examination also includes a case in which a plan sponsor has submitted a Form 5310, Application for Determination of Qualification Upon Termination, and the EP Agent notifies the plan sponsor of possible defects, whether or not the plan sponsor is officially notified of an "examination." For example, if an employer has applied for a determination letter on plan termination, and an EP Agent notifies the employer that there are partial termination concerns, the plan is no longer eligible for the VCR program.

(3) The VCR program is available with respect to any other plan of the plan sponsor that is not aggregated for purposes of satisfying the qualification requirements of section 401(a) with the plan (or plans) under examination. In addition, the VCR program is available for a plan that is aggregated with a plan that is under an Employee Plans examination with respect to a defect that is not related to provisions for which the plans are aggregated. Thus, for example, a plan aggregated with a plan that is under examination could request consideration under the VCR program for a defect arising under the spousal consent rules of section 417, or the vesting rules of section 411, but could not ask for consideration of a defect under provisions for which the plans are aggregated, including the nondiscrimination provisions (sections 401(a)(4), 410(b), etc.), section 415 or section 416. For purposes of this revenue procedure, the term aggregation does not include consideration of benefits provided by various plans for purposes of the average benefits test set forth in section 410(b)(2).

SECTION 5. VCR PROGRAM CORRECTION PRINCIPLES AND REQUIREMENTS

.01 Information to be provided. A request for a compliance statement (including an SVP compliance statement) must contain the specific information needed to support the suggested correction method. This includes, for example, the number of employees affected (and how this number was determined), the expected cost of correction, the years involved, and any calculations or assumptions the plan sponsor used to determine the amounts needed for correction. The submission must state the interest rate (and the method of determining the interest rate) that will apply to any corrective contributions or distributions. As a general rule, the interest rate (or rates) earned by the plan during the applicable period(s) should be used in determining the earnings for corrective contributions or distributions. For administrative convenience, if the plan permitted directed investments for the years at issue and thus had a number of funds, the plan is permitted (but not required) under the VCR program to use the highest rate earned in the plan for a particular year as the correction rate for that year, provided that most of the employees receiving the corrective allocations or distributions are nonhighly compensated employees. Where applicable, the request for a compliance statement should also provide the proposed method of locating and notifying former participants who may be entitled to additional benefits.

.02 Description of proposed correction method. In the request for a compliance statement (including an SVP compliance statement), the plan sponsor must give a description of the method for correcting the defect that the plan sponsor has implemented or proposes to implement. The following general principles should be used in suggesting acceptable corrections:

(1) The correction method should restore both current and former participants to the benefit levels they would have had if the defect had not occurred. Action must be taken to find former participants who are due additional benefits. Appropriate actions depend on the facts and circumstances of the case. Such actions might include, for example, a mailing to the last known address, notification in the largest local newspaper, and the use of the IRS letter forwarding service (see Rev. Proc. 94-22, 1994-9 I.R.B. 48) if the participants have not been found.

(2) The correction method should restore the plan to the position it would have been in had the defect not occurred.

(3) To the extent possible, the correction should conform the operation of the plan to the actual plan language. Thus, amending the plan to conform the plan document to the way the plan was actually operated is not an acceptable VCR correction.

(4) The correction method should not violate another section 401(a) qualification requirement (e.g., section 411(d)(6)).

(5) The correction method should, to the extent possible, resemble one already provided for in the Code, regulations or other publications. For example, the defined contribution plan correction methods set forth in Treasury Regulation section 1.415-6(b)(6) would be the typical means of correcting violations under section 415. Likewise, the correction method set forth in section 1.402(g)-1(e)(2) would be the typical means of correcting violations under section 402(g). However, correction methods making use of the special testing provisions set forth in sections 1.401(a)(4)-8 (involving the testing of benefits on a contributions basis or contributions on a benefits basis) or 1.401(a)(4)-9 (involving the restructuring of plans into component plans) are not permissible correction methods under the VCR program.

(6) The correction method should keep the assets in the plan, except to the extent the Code, regulations or other publications already provide for a distribution. For example, if an excess allocation (not in excess of the section 415 limits) was made to a plan (other than a cash or deferred arrangement), the excess should be reallocated to other employees or used to reduce the employer contributions for the following year.

(7) Corrective allocations to a defined contribution plan must be adjusted for earnings and forfeitures that would have been allocated during the applicable period. In addition, corrective allocations must be based upon the compensation or earnings that would have been used in the period for which the allocation is made.

(8) The corrective contributions should come only from employer contributions (including forfeitures, if the plan permits their use to reduce employer contributions).

(9) A corrective allocation to a participant's account because of a failure to make a required allocation in a prior limitation year will not be considered an annual addition with respect to the participant for the limitation year in which the correction is made. It will be considered an annual addition for the limitation year to which it relates. This rule does not apply to section 404, regarding deductions.

(10) Any distributions from the plan should be properly reported.

SECTION 6. STANDARDIZED VCR PROCEDURE

.01 SVP. Certain operational defects may be corrected under the Standardized VCR Procedure (SVP) rules set forth in this section and in sections 7 and 8 of this revenue procedure. The plan sponsor must request an SVP compliance statement, pay the reduced compliance fee and make the permitted correction set forth in section 8 of this revenue procedure for that defect. If there are one or two defects that can be corrected under SVP and other defects that cannot be corrected under SVP, SVP is not available.

.02 General restrictions on SVP. SVP is available if the only identified defect or defects are listed in section 8 of this revenue procedure and are corrected using the permitted correction method set forth in section 8 of this revenue procedure. The correction method set forth in section 8 for an SVP defect is the only acceptable correction method available for that defect under SVP. If the plan sponsor proposes any modification to the SVP correction method, SVP is not available.

.03 Alternative correction methods available under VCR. If the plan sponsor wishes to propose a correction method other than the one provided in section 8, the plan sponsor may request a compliance statement under the regular VCR procedures. A plan sponsor may request consideration under the regular VCR procedures even if SVP is available.

.04 Procedural requirements. If the plan sponsor intends to use SVP, the plan sponsor must use the procedures set forth in section 10 of this revenue procedure.

.05 Two defect limit. SVP is not available if the plan sponsor has identified more than two SVP defects in a single SVP request. The Service reserves the right to shift a request for consideration under SVP into the VCR program if the plan sponsor submits a second SVP request with respect to the same plan while the first SVP request is being considered or during the 12 months after the first SVP compliance statement is issued.

.06 Expansion of SVP. The Service may identify additional defects and permitted correction methods available for SVP at a later date, but only by publication in revenue procedures, notices or other guidance published in the Internal Revenue Bulletin.

SECTION 7. SVP CORRECTION RULES

General rules. The general rules listed below apply to all SVP permitted correction methods listed in section 8 of this revenue procedure.

(1) Corrective allocations must include any earnings that would have been applicable had the allocation been properly made. However, in no event should the allocation plus gains/losses be less than the allocation by itself. For example, if a missed allocation was $500, the interest in the first year was $10, and the loss in the second year was $30, the corrective allocation may not be less than $500.

(2) As in the regular VCR program, a plan sponsor may amend the plan to the extent necessary to effect one of the permitted correction methods.

(3) The general correction principles set forth in section 5 of this revenue procedure must be followed.

SECTION 8. SVP DEFECTS AND CORRECTION

.01 Failure to provide the minimum top-heavy benefit under section 416 of the Code to non-key employees. In a defined contribution plan, the permitted correction method is to contribute and allocate the required top-heavy minimums to the plan in the manner provided for in the plan on behalf of the non-key employees (and any other employees required to receive top-heavy allocations under the plan). In a defined benefit plan, the minimum required benefit must be accrued in the manner provided in the plan.

.02 Failure to satisfy the actual deferral percentage (ADP) test set forth in section 401(k)(3) of the Code, the actual contribution percentage (ACP) test set forth in section 401(m)(2) or the multiple use test of section 401(m)(9). The permitted correction method for failure to satisfy the ADP test, the ACP test, or the multiple use test is to make qualified nonelective contributions (QNECs) or qualified matching contributions (QMACs) (as defined in section 1.401(k)-1(g)(13)) on behalf of the nonhighly compensated employees to the extent necessary to raise the actual deferral percentage or actual contribution percentage of the nonhighly compensated employees to the percentage needed to pass the test or tests. The contributions must be made on behalf of all eligible nonhighly compensated employees (to the extent permitted under section 415) and must either be the same flat dollar amount or the same percentage of compensation. QNECs contributed to satisfy the ADP test need not be matched. The employees who would have been eligible for a matching contribution if they had made elective deferrals must be counted as eligible employees for the ACP test, and the plan must satisfy the ACP test. Under this SVP correction method, a plan may not be treated as two separate plans, one covering otherwise excludable employees and the other covering all other employees (as permitted in section 1.410(b)-6(a)(3)) in order to reduce the number of employees eligible to receive QNECs. Likewise, under this SVP correction method, the plan may not be restructured into component plans (as permitted in section 1.401(k)-1(h)(3)(iii) for plan years before January 1, 1992) in order to reduce the number of employees eligible to receive QNECs.

.03 Failure to distribute elective deferrals in excess of the section 402(g) limit (in contravention of section 401(a)(30)). The permitted correction method is to distribute the excess deferral to the employee and to report the amount as taxable in the year of deferral and the year distributed. In accordance with section 1.402(g)-1(e)(1)(ii), a distribution to a highly compensated employee is included in the ADP test; a distribution to a nonhighly compensated employee is not included in the ADP test.

.04 Exclusion of an eligible employee from plan participation. The permitted correction method is to make a contribution to the plan on behalf of the employees excluded from a defined contribution plan, or to provide benefit accruals for the employees excluded from a defined benefit plan. If an employee was denied eligibility under a cash or deferred arrangement, the employer must make a QNEC to the plan on behalf of the employee that is equal to the average deferral percentage for the employee's group (either highly compensated or nonhighly compensated). For purposes of this SVP correction, the QNEC is treated as an elective deferral and therefore any match that would have applied to the elective deferral must be applied to the QNEC. If an employee was denied eligibility to make employee contributions or receive a matching contribution, the employer must make a QNEC to the plan on behalf of the employee that is equal to the average contribution percentage for the employee's group (either highly compensated or nonhighly compensated). For purposes of this SVP correction, if the QNEC is contributed in lieu of an employee contribution, any match that would have applied to an employee contribution must be applied to the QNEC. Contributing the average deferral or contribution percentage for such employees is required because it eliminates the need to rerun the ADP or ACP test to account for the previously excluded employees. Under this SVP correction method, a plan may not be treated as two separate plans, one covering otherwise excludable employees and the other covering all other employees (as permitted in section 1.410(b)-6(a)(3)) in order to reduce the number of employees eligible to receive QNECs. Likewise, restructuring the plan into component plans under section 1.401(k)-1(h)(3)(iii) is not permitted in order to reduce the number of employees eligible to receive QNECs.

.05 Failure to timely pay the minimum distribution required under section 401(a)(9). The permitted correction method is to distribute the required minimum distribution amounts and any applicable gains or losses for all prior years. The employer will enter into a standardized closing agreement to pay 100% of the excise tax that would ordinarily apply because of the failure to distribute.

.06 Failure to obtain participant and/or spousal consent for a distribution subject to the participant and spousal consent rules under sections 401(a)(11), 411(a)(11) and 417. The permitted correction method is to give the affected employees a choice between providing informed consent for the distribution actually made or receiving a qualified joint and survivor annuity. In order to use this SVP correction method, the plan sponsor must have contacted all affected participants and the spouses (to whom the participants were married at the time of distribution) before requesting consideration under SVP. In the event that participant consent is required but cannot be obtained, the participant must receive a qualified joint and survivor annuity. This annuity may be offset for any amounts already received by the participant. In the event that spousal consent is required but cannot be obtained, the employer must provide a survivor annuity. A spousal survivor annuity may not be offset by any amount received by the participant.

.07 Failure to satisfy the section 415 limits in a defined contribution plan. The permitted SVP correction for failure to limit annual additions (other than elective deferrals) allocated to participants in a defined contribution plan as required in section 415(c) (even if the excess did not result from the allocation of forfeitures or from a reasonable error in estimating compensation) is to place the excess annual additions into an unallocated section 415 suspense account under section 1.415-6(b)(6)(iii) to be used as an employer contribution in the succeeding year (or years). While such amounts remain in the suspense account, the employer is not permitted to make additional contributions to the plan. The permitted SVP correction for failure to limit annual additions that are elective deferrals (even if there was not a reasonable error in determining the amount of elective deferrals that may be made with respect to an individual under the section 415 limits), is to distribute the elective deferrals under section 1.415-6(b)(6)(iv) (see, also Revenue Procedure 92-93, 1992-2 C.B. 470).

SECTION 9. VOLUNTARY COMPLIANCE FEE

.01 Rev. Proc. 94-8 modified. A voluntary compliance fee is administered under the user fee program described in Rev. Proc. 94-8, 1994-1 I.R.B. 176, as modified by this revenue procedure.

.02 Amount of compliance fee. The regular VCR voluntary compliance fee depends on the assets of the plan and the number of plan participants.

(1) The fee for a plan with assets of less than $500,000, and no more than 1,000 plan participants, is $500.

(2) The fee for a plan with assets of at least $500,000, and no more than 1,000 plan participants, is $1,250.

(3) The fee for a plan with more than 1,000 plan participants but less than 10,000 plan participants is $5,000.

(4) The fee for a sponsor with 10,000 or more plan participants is $10,000.

.03 Establishing number of plan participants. The plan sponsor will use the numbers from the most recently filed Form 5500 series to establish the fee. Thus, the plan sponsor will use the number shown on line 7(f) of the 1993 Form 5500 (or the equivalent line on the Form 5500 C/R or EZ and on later forms) to establish the number of plan participants. The plan sponsor will use line 31(f) of the 1993 Form 5500 (or the equivalent line on the Form 5500 C/R or EZ and on later forms) to establish the amount of plan assets.

.04 SVP compliance fee. The SVP compliance fee is $350.

SECTION 10. PROCESSING REGULAR VCR REQUESTS

.01 Inadequate or incomplete submission. If the request for consideration under the VCR program fails to comply with the provisions of this revenue procedure or additional information is required, the Service representative assigned to the case will generally contact the sponsor or the sponsor's representative and explain what is needed to complete the submission. The sponsor will have 21 calendar days from the date of this contact to provide the requested information. If the information is not received within 21 days, the matter will be closed, the compliance fee will not be returned, and the case may be referred to the appropriate KDO in accordance with section 3.09 of this revenue procedure. Any request for an extension of the 21-day time period must be made in advance, in writing, and must be approved by the Chief of the VCR program.

.02 Seriously deficient submission. If a submission is seriously deficient the Service reserves the right to return the submission and the compliance fee without contacting the plan sponsor.

.03 Processing of submission. Once the Service determines that the request for consideration under the VCR program is acceptable, the Service will consult the employer or the employer's representative, discussing proposed corrections and any necessary changes to the administrative procedures. If agreement is reached, the Service will issue a correction statement with an enclosed acknowledgment letter. The case will not be closed until the signed acknowledgement letter is received.

.04 Conference right. If the Service initially determines that it cannot issue a compliance statement because the parties cannot agree upon some correction or administrative procedures, the plan sponsor or the plan sponsor's representative will be contacted by the Service representative and offered a conference in the Service. The conference can be held either in person or by telephone. The conference must be held within 21 calendar days of the date of contact. The sponsor or the sponsor's representative will have 21 calendar days after the date of the conference to submit additional information in support of the submission. Any request for an extension of the 21-day time period must be made in advance, in writing, and be approved by the Chief of the VCR program. Additional conferences may be held at the discretion of the Service.

SECTION 11. PROCESSING SVP REQUESTS

.01 Inadequate or incomplete submissions. If the Service determines that a request for consideration under SVP is deficient, the Service will generally contact the plan sponsor and ask for more information. This information must be supplied within 10 days after it is requested unless more time has specifically been approved by the Chief of the VCR program. If the requested information is not received within 10 days, the case will be closed, the compliance fee will not be returned, and the case may be referred to the appropriate KDO in accordance with section 3.09 of this revenue procedure. Any request for an extension of the 10-day time period must be made in advance, in writing, and must be approved by the Chief of the VCR program. In appropriate circumstances, the Service may notify the employer that SVP is not available and offer to process the case as a request for a compliance statement under the regular VCR program, with payment of the appropriate voluntary compliance fee (offset by the SVP fee already collected).

.02 Seriously deficient submissions. If a request for consideration under SVP is seriously deficient, the Service reserves the right to return the submission and the compliance fee without contacting the plan sponsor.

.03 SVP timing. The Service will review an SVP request within 120 days of the date the submission is received and determined to be complete. If the Service determines that the request is acceptable, the Service will issue a compliance statement on the plan sponsor's proposed correction.

SECTION 12. COMPLIANCE STATEMENT

.01 General description of compliance statement. The plan sponsor will receive a compliance statement from the Service. The statement will state the defects identified, describe the terms of full correction and describe any revision of administrative procedures. The statement will also state the time frame in which the corrections and procedures must be implemented. The compliance statement provides that the corrections are acceptable and that the Service will not pursue plan disqualification with respect to the operational defects identified in the statement.

.02 Compliance statement conditioned upon timely correction. The corrections determined to be necessary by the Service will be set forth in the compliance statement addressed to the plan sponsor. The compliance statement will be conditioned upon the implementation of the specific corrections and administrative changes, if any, within the stated time period.

SECTION 13. VCR/SVP PROCEDURES

.01 General rules. This section sets forth the procedures for requesting a compliance statement from the Service under the regular VCR program or SVP. In general, a request consists of a letter from the plan sponsor or the plan sponsor's representative to the Service that contains a description of the disqualifying defect(s), a description of the proposed method(s) of correction, and other procedural items, and includes supporting information and documentation as described below.

.02 Multiemployers and multiple employers. In a multiemployer or multiple employer plan, the plan administrator (rather than any contributing or adopting employer) must request consideration of the multiemployer or multiple employer plan under the VCR program. The VCR request must be with respect to the plan, rather than a portion of the plan affecting any particular employer.

.03 Availability of Walk-in CAP. If the VCR program is available, a plan sponsor is not permitted to request consideration under Walk-in CAP.

.04 Submission requirements. The letter from the sponsor or the sponsor's representative must contain the following:

(1) A complete description of the operational defects and the years in which the defects occurred, including closed years (that is, years for which the statutory period has expired).

(2) A description of the current administrative procedures for the plan.

(3) An explanation of how and why the defects arose.

(4) A detailed description of the method for correcting the defects that the plan sponsor has implemented or proposes to implement, including specific calculations for each affected employee.

(5) A description of the measures that have been or will be implemented to ensure that the same operational defect(s) will not reoccur.

(6) A statement that, to the best of the plan sponsor's knowledge, the plan is not currently under an Employee Plans examination (as defined in section 4.06 of this revenue procedure).

(7) The location of the KDO that has jurisdiction over the plan.

.05 Required documents. The submission must be accompanied by the following information:

(1) The plan number and the Employer Identification Number(s) of the employer maintaining the plan.

(2) A copy of the first two pages of the most recently filed Form 5500 series return.

(3) A copy of the determination letter, opinion letter or notification letter that considered TEFRA, DEFRA and REA and any subsequent letter. After December 31, 1995, the letter must have considered TRA '86.

(4) A copy of the relevant portions of the plan document.

(5) A statement (if applicable) that the plan is currently being considered in a determination letter application. If the request for a determination letter is made while the request for VCR consideration is pending, the plan sponsor must update the VCR request to add this information.

.06 Signed submission. The submission must be signed by the sponsor or the sponsor's representative.

.07 Power of Attorney requirements. To sign the submission or to appear before the Service in connection with the submission, the representative must comply with the requirements of section 9.02(11 and 12) of Rev. Proc. 94-4, 1994-1 I.R.B. 90.

.08 Penalty of perjury statement. The following declaration must accompany a submission and any factual information or change in the submission at a later time: "Under penalties of perjury, I declare that I have examined this submission, including accompanying documents, and to the best of my knowledge and belief, the facts presented in support of the VCR program submission are true, correct, and complete." The declaration must be signed and dated by the plan sponsor, not the sponsor's representative.

.09 Fee. The submission must include the appropriate voluntary compliance fee described in section 9 of this revenue procedure.

.10 Marked envelope. The letter to the Service should be marked "VCR PROGRAM" or "SVP/VCR PROGRAM", as appropriate, in the upper right hand corner of the letter.

.11 Mailing address. The submission should be mailed to:

               Internal Revenue Service

(1) A statement that this is an SVP request.

(2) A description of the permitted correction method(s) set forth in section 8 of this revenue procedure for correcting the defect(s), with a statement that the plan sponsor proposes to implement (or has implemented) the correction(s).

(3) The proposed time period of the correction. In general, the correction must be made within 90 days from the date of the compliance statement. If a longer time frame is needed, it should be requested in the letter, with the reason that the longer period is necessary. If the correction cannot be completed within 120 days after the compliance statement is issued, SVP is not available.

SECTION 14. EFFECT ON OTHER DOCUMENTS

.01 Revenue procedures superseded. Revenue Procedure 92-89 and Revenue Procedure 93-36 are superseded by this revenue procedure.

.02 Revenue procedure 94-8 modified. Rev. Proc. 94-8 is modified as provided in section 9 of this revenue procedure.

.03 Revenue procedure 94-6 modified. Rev. Proc. 94-6 is modified to delete section 5.07. This section required the plan sponsor to state that the plan had been considered under the VCR program (if applicable) in a determination letter application. Pursuant to this change, question 14(e) of Form 5300 need not be answered.

SECTION 15. EFFECTIVE DATE

This revenue procedure is effective on September 26, 1994.

DRAFTING INFORMATION

The principal author of this revenue procedure is Karen Field of the Employee Plans Division. For more information concerning this revenue procedure, call the Employee Plans Division VCR Telephone Number, (202) 622-8165 (not a toll-free number). Mrs. Field may be reached at (202) 622-6214 (also not a toll-free number).