IRS Updates Comprehensive Employee Plan Correction Guidance

                           TABLE OF CONTENTS

.01 Purpose. This revenue procedure updates the comprehensive system of correction programs for sponsors of retirement plans that are intended to satisfy the requirements of § 401(a), 403(a), 403(b), 408(k), or 408(p) of the Internal Revenue Code (the "Code"), but that have not met these requirements for a period of time. This system, the Employee Plans Compliance Resolution System ("EPCRS"), permits Plan Sponsors to correct these failures and thereby continue to provide their employees with retirement benefits on a tax-favored basis. The components of EPCRS are the Self-Correction Program ("SCP"), the Voluntary Correction Program ("VCP"), and the Audit Closing Agreement Program ("Audit CAP").

.02 General principles underlying EPCRS. EPCRS is based on the following general principles:

• Sponsors and other administrators of eligible plans should be encouraged to establish administrative practices and procedures that ensure that these plans are operated properly in accordance with the applicable requirements of the Code.

• Sponsors and other administrators of eligible plans should satisfy the applicable plan document requirements of the Code.

• Sponsors and other administrators should make voluntary and timely correction of any plan failures, whether involving discrimination in favor of highly compensated employees, plan operations, the terms of the plan document, or adoption of a plan by an ineligible employer. Timely and efficient correction protects participating employees by providing them with their expected retirement benefits, including favorable tax treatment.

• Voluntary compliance is promoted by providing for limited fees for voluntary corrections approved by the Internal Revenue Service ("Service"), thereby reducing employers' uncertainty regarding their potential tax liability and participants' potential tax liability.

• Fees and sanctions should be graduated in a series of steps so that there is always an incentive to correct promptly.

• Sanctions for plan failures identified on audit should be reasonable in light of the nature, extent, and severity of the violation.

• Administration of EPCRS should be consistent and uniform.

• Sponsors should be able to rely on the availability of EPCRS in taking corrective actions to maintain the tax-favored status of their plans.

• Self-correction (SCP). A Plan Sponsor that has established compliance practices and procedures may, at any time without paying any fee or sanction, correct insignificant Operational Failures under a Qualified Plan, a 403(b) Plan, a SEP, or a SIMPLE IRA Plan. For a SEP or SIMPLE IRA Plan, however, SCP is available only if the SEP or SIMPLE IRA Plan is established and maintained on a document approved by the Service. In the case of a Qualified Plan that is the subject of a favorable determination letter from the Service or in the case of a 403(b) Plan, the Plan Sponsor generally may correct even significant Operational Failures without payment of any fee or sanction if the correction is made within the time specified in section 9.02.

• Voluntary correction with Service approval (VCP). A Plan Sponsor, at any time before audit, may pay a limited fee and receive the Service's approval for correction of a Qualified Plan, 403(b) Plan, SEP, or SIMPLE IRA Plan failure. Under VCP, there are special procedures for Anonymous Submissions and group submissions.

• Correction on audit (Audit CAP). If a failure (other than a failure corrected through SCP or VCP) is identified on audit, the Plan Sponsor may correct the failure and pay a sanction. The sanction imposed will bear a reasonable relationship to the nature, extent, and severity of the failure, taking into account the extent to which correction occurred before audit.

.01 Effect on programs. This revenue procedure modifies and supersedes Rev. Proc. 2008-50, 2008-2 C.B. 464, the prior consolidated statement of the correction programs under EPCRS.

.02 Modifications to VCP submission procedures. All VCP submissions made on or after April 1, 2013, are required to include a completed Form 8950, Application for Voluntary Correction Program (VCP) Under the Employee Plans Compliance Resolution System (EPCRS), and a Form 8951, Compliance Fee for Application for Voluntary Correction Program Submission Under the Employee Plans Compliance Resolution System (EPCRS ). Section 11.12 provides new addresses that must be used when mailing VCP submissions to the Service. These procedures and addresses may be used by VCP applicants prior to April 1, 2013, as permitted by section 16 of this revenue procedure.

.03 Modifications relating to 403(b) Plans. This revenue procedure generally permits Plan Sponsors maintaining 403(b) Plans to correct a failure in the same manner that the same failure could be corrected under a Qualified Plan. The revenue procedure also updates EPCRS to coordinate with Notice 2009-3, 2009-2 I.R.B. 250, and the final regulations under § 403(b) that were issued on July 26, 2007. The definitions for 403(b) Plans (section 5.02) have been modified to add a definition of Plan Document Failure and to revise the definitions of Operational Failure, Demographic Failure, and Employer Eligibility Failure to coordinate with the new definition of Plan Document Failure. These definitions are revised for failures that occurred on or after the effective date of the regulations under § 403(b). These regulations are generally effective for taxable years beginning on or after January 1, 2009. (See section 16 for rules applicable to 403(b) failures that occurred in taxable years beginning before January 1, 2009.) With these revisions, corrections applicable to failures for 403(b) Plans are substantially the same as those available for Qualified Plans (see section 5.01). In addition, changes have been made in Appendix A and Appendix B to extend these correction methods to 403(b) failures. The correction principles for 403(b) Plans take into account the provisions of Notice 2009-3. Notice 2009-3 provides that the Service will not treat a plan as failing to satisfy the requirements of § 403(b) and the regulations during the 2009 calendar year if (1) the plan sponsor adopts a written plan that is intended to satisfy the requirements of § 403(b) and the regulations, effective as of January 1, 2009, (2) during 2009 the plan sponsor operates the plan in accordance with a reasonable interpretation of § 403(b) taking into account the regulations, and (3) before the end of 2009, the plan sponsor makes its best efforts to retroactively correct any operational failure to conform to the terms of the written 403(b) Plan in a manner that is consistent with the correction principles outlined in section 6 of this revenue procedure.

EPCRS is available to correct failures that occur in years prior to 2009 in violation of § 403(b) with respect to a plan's operation other than a failure to operate in accordance with the plan document. There is no document requirement applicable to 403(b) Plans prior to this date. Announcement 2009-34, 2009-18 I.R.B. 916, and Announcement 2009-89, 2009-52, I.R.B. 1009, provide guidance on written 403(b) Plans, including a retroactive remedial amendment period for years after 2009 that will permit employers to retroactively amend their plans for Plan Document Failures. To the extent that a remedial amendment period applies under Announcement 2009-89, a 403(b) plan will not have a Plan Document Failure during the period beginning January 1, 2010, and ending on a date to be announced in future guidance, provided that the Plan Document Failure is corrected through a retroactive plan amendment that is adopted by the end of the remedial amendment period. See section 6.10(2) & (3) for special correction principles that apply for 403(b) Plans in connection with Notice 2009-3.

.04 Description of other modifications. The modifications to Rev. Proc. 2008-50 that are reflected in this revenue procedure include:

• Replacing references to VCP application procedures with VCP submission procedures

• Updating section 4.04 to address established practices and procedures to promote compliance with § 415(c)

• Updating section 4.09 regarding the availability of correction of § 457 plans

• Adding a definition of Earnings to section 5 that has a specified meaning throughout this revenue procedure (and that generally includes losses, if applicable)

• Adding to section 5.02 a definition of Overpayment and Favorable Letter for 403(b) Plans

• Clarifying and revising section 6.02(4)(c) and Appendix A, section .03, to provide that for purposes of correcting a failed ADP, ACP, or multiple use test, any amounts used to fund QNECs must satisfy the definition of QNEC in § 1.401(k)-6

• Revising section 6.02(4)(d) to clarify the actuarial equivalence factors that should be used to determine a corrective distribution from a defined benefit plan

• Adding section 6.02(4)(e) to provide for correction of a failure to satisfy § 436

• Revising section 6.02(5)(d) to reflect that the IRS Letter Forwarding Program is no longer available as a method for locating lost plan participants who are owed additional retirement benefits, to clarify the actions that must be taken to locate those participants, and to provide for a limited extension of the VCP 150-day correction period and the SCP correction period set forth in sections 10.07(9) and 9.02(1) of this revenue procedure, respectively, for Plan Sponsors taking action to locate lost participants

• Revising section 6.03 to improve clarity

• Revising section 6.04(2)(c) to add a sentence that takes into account the requirements of § 436 if a single employer defined benefit plan is under restriction at the time of correction

• Revising sections 6.05(1), 6.05(2), 6.05(3)(a), and 6.05(3)(c) to clarify the situations under which a determination letter application may not be submitted under EPCRS

• Revising section 6.05(3)(a) to clarify what is meant by "good faith amendments," "interim amendments," and "optional law changes" and when the provisions of section 6.05(3)(a) are applicable, and adding a new section 6.05(3)(b) to improve clarity

• Modifying section 6.05(3)(c) (formerly section 6.05(3)(b)) to specify that a determination letter application is not required and may not be submitted to correct a Demographic Failure, and to clarify the scope of reliance on a compliance statement or closing agreement

• Adding section 6.05(3)(d) to provide that a determination letter application is not required and may not be submitted with a VCP submission to correct a failure to adopt amendments required under the terms of a favorable determination letter

• Adding section 6.05(5) to address corrective amendments to pre-approved plans

• Revising section 6.06(3) to address the correction of Overpayments from defined benefit plans

• Adding section 6.06(4) to address the correction of Overpayments from defined contribution plans, including 403(b) Plans, and to clarify when an employer contribution to correct an Overpayment is required

• Revising section 6.07 to clarify that the correction principles in that section also apply to Audit CAP

• Adding section 6.10(3) to address the correction of a 403(b) Plan failure to adopt a written plan document timely in accordance with the final regulations under § 403(b) and Notice 2009-3

• Revising section 10.07(8) to improve clarity and to reference the new model compliance statement in Appendix C Part I

• Revising section 10.08 by addressing the failure to adopt a written 403(b) Plan timely, reorganizing the section to improve clarity, and clarifying the scope of reliance on a compliance statement

• Revising section 10.10 and adding section 11.08(2) to clarify that if an Anonymous Submission is made by an individual who represents the Plan Sponsor, such individual must satisfy the power of attorney requirements and provide a statement under penalty of perjury to that effect

• Revising sections 10.11(1) and 12.05 to clarify that in the case of either a prototype or specimen plan, the number of plans (for the purpose of determining the number of group submissions that may be required) is based on the number of basic plan documents, not adoption agreements

• Revising section 10.12(2) to clarify that the VCP compliance fee or sanction imposed with respect to multiemployer and multiple employer plans is based on participants rather than assets

• Revising sections 10.07(1), 10.07(10), 11.01, and 11.02, and adding a new section 11.04(1) to require that Forms 8950 and 8951 be included with all VCP submissions, and to make conforming changes consistent with this new requirement (including the consolidation of Appendices D and F procedures into a new two-part Appendix C)

• Revising section 11.02 to discuss the use of the Appendix C Part II Schedules

• Revising section 11.03 submission requirements to refer to the new two-part Appendix C and to reflect the use of the Form 8950 in VCP submission procedures

• Revising section 11.04(3) (formerly section 11.04(2)) to provide that if a restated plan document is being submitted as evidence of correction then the plan sponsor must identify the corrective plan language in the restated plan

• Revising section 11.05 to provide that a photocopy of the check for the VCP compliance fee must be included with the submission

• Revising section 11.09 to eliminate the requirement to submit an Appendix C Checklist and to refer to the Procedural Requirements Checklist on Form 8950

• Revising section 11.12 (formerly 11.13) to provide new mailing addresses for all VCP submissions and, if applicable, accompanying determination letter applications effective for submissions made on or after April 1, 2013

• Revising section 11.14 (formerly 11.15) to require that Forms 8950 and 8951 be included when assembling the VCP submission, to remove duplicative items captured by Form 8950, and to clarify that an applicant must submit separate attachments and other necessary documents for both a VCP submission and a related determination letter application

• Revising section 12.01 to add that a completed Form 8951 must accompany all VCP submissions along with the initial compliance fee

• Adding section 12.01(2) to provide notice that VCP compliance fee checks may be converted into an electronic fund transfer

• Adding section 12.02(5) to provide that the VCP compliance fee for a failure to adopt a 403(b) Plan timely is temporarily reduced by 50% if certain conditions are met

• Adding section 12.03(3) to provide that the VCP compliance fee is $500 if: (a) the sole failure is the failure to adopt an amendment (upon which the favorable determination letter is conditioned) within the applicable remedial amendment period, and (b) the required amendment is adopted within three months of the expiration of the remedial amendment period for adopting the proposed amendment

• Adding section 12.04 to provide that if a VCP submission includes multiple failures, each of which is subject to a reduced fee, then the fee for the submission will be the lesser of the sum of the reduced fees or the fee determined pursuant to the schedule under section 12.02(1)

• Revising section 12.08 to clarify how to determine the number of plan participants if the Plan Sponsor is not required to file a Form 5500 series return with regard to a Qualified Plan or 403(b) Plan eligible for VCP

• Revising section 14.04(1) and (2) to update the fee schedule for nonamenders discovered during the determination letter application process not related to a VCP submission and adding section 14.04(3) and (4) to provide for reduced sanctions for certain nonamender failures discovered during the determination letter application process that were not related to a VCP submission

• Revising Appendix A, section .05, and related examples in Appendix B to provide that, in some cases, a matching contribution owed to a participant may be made in the form of a corrective employer matching contribution, instead of a QNEC, so that the corrective employer matching contribution would be subject to the vesting schedule under the plan that applies to employer matching contributions

• Clarifying and adding correction methods under Appendix A, section .05(2)(d), for the improper exclusion of employees from safe harbor 401(k) plans under §§ 401(k)(12) and 401(k)(13)

• Adding Appendix A, section .05(6) and (7), to provide for corrections for improper exclusion of employees from making elective deferrals to 403(b) and SIMPLE IRA Plans

• Clarifying that the correction under Appendix A, section .06, involving the failure to timely pay a required minimum distribution in a defined benefit plan that is subject to a restriction under § 436 at the time of correction requires the Plan Sponsor to make a contribution to the plan

• Clarifying that the correction under Appendix A, section .07(2), involving the payment of a lump sum to a spouse to correct the failure to obtain spousal consent before making distributions to a participant for a plan that is subject to a restriction on single-sum payments under § 436(d) at the time of correction, is available only if the Plan Sponsor (or other person) makes a contribution to the plan

• Clarifying that the correction by plan amendment under Appendix B, section 2.07(3), for the early inclusion of an employee who did not satisfy the plan's age, service, or entry date requirement, must be consistent with the rules relating to the limitations on plan amendments increasing liability for benefits under § 436(c)

• Revising Appendix C to consist of two parts: (a) a Model VCP Submission Compliance Statement and (b) various Schedules (formerly Appendix F Schedules) that contain limited standardized failure descriptions and correction methods that may assist applicants when preparing VCP submissions

• Revising all of the former Appendix F Schedules and redesignating them as Appendix C Part II Schedules that may be used with the Appendix C Part I Model VCP Submission Compliance Statement (or simply as an aid in VCP submissions that do not use the Appendix C Part I Model VCP Submission Compliance Statement)

• Revising Appendix C Part II Schedule 1 (formerly Appendix F Schedule 1) by changing the format and providing instructions on when Schedule 1 should be used

• Revising Appendix C Part II Schedule 2 (formerly Appendix F Schedule 2) to include the failure to amend timely for the 2004, 2008, 2009, 2010, 2011 and 2012 Cumulative Lists, the failure to amend timely for an amendment required as a condition to a favorable determination letter, the failure to adopt a written 403(b) Plan timely, and the failure to adopt a pre-approved defined benefit plan timely in accordance with Announcement 2010-20, I.R.B. 2010-15

• Revising Appendix C Part II Schedules 3, 4, and 9 (formerly Appendix F Schedules 3, 4, and 9) to reflect the revision regarding the method of locating former participants on the Model VCP Submission Compliance Statement associated with Appendix C Part I or any issued compliance statements

(1) Future updates. It is expected that the EPCRS revenue procedure will continue to be updated, in whole or in part, from time to time, including further improvements to EPCRS based on comments received. Thus, the Service and Treasury continue to invite further comments on how to improve EPCRS. Comments should be sent to:

(3) Designated Roth contributions. Comments continue to be requested on special issues relating to designated Roth contributions. For example, comments are requested on whether, if a plan failed to implement a participant's election to have a designated Roth contribution made on his or her behalf, but instead a pre-tax elective deferral was made for the participant with the participant's compensation reduced accordingly, it would be an appropriate correction of the failure for the employer to ask the participant whether correction should be made by a transfer of the contribution (adjusted for Earnings) to a Roth account under the plan and inclusion of the amount so transferred in the participant's compensation in the year of the transfer (instead of either (i) a similar transfer with a corrected W-2 for the year of the failure and the participant having to complete an amended return for the year of the failure or (ii) a similar transfer and inclusion of the amount so transferred in the participant's compensation in the year of the transfer, but with the employer to make a gross-up payment to the participant to make the participant whole for any increase in the resulting income tax). Comments are also requested regarding cases in which a plan fails to notify an employee of his or her right to elect designated Roth contributions, such as whether a corrective contribution to a Roth account (in an amount such as described in section .05(3) of Appendix A), with the right to elect to have that amount included in gross income as described in the preceding sentence, should be applied in this case or whether some additional corrective contribution should be required to reflect the possibility that a participant's decision to make an elective deferral might be affected by the availability of designated Roth contributions. See generally section .05(3) of Appendix A and Example 3 of Appendix B, section 2.02(1)(b), for illustrations of corrections for exclusion of otherwise eligible employees from having an effective opportunity to make elective deferrals, which applies without regard to whether the plan only permits pre-tax elective deferrals or whether the plan also permits designated Roth elective deferrals.

PART II. PROGRAM EFFECT AND ELIGIBILITY

SECTION 3. EFFECT OF EPCRS; RELIANCE

.01 Effect of EPCRS on retirement plans. For a Qualified Plan, a 403(b) Plan, a SEP, or a SIMPLE IRA Plan, if the eligibility requirements of section 4 are satisfied and the Plan Sponsor corrects a failure in accordance with the applicable requirements of SCP in section 7, VCP in sections 10 and 11, or Audit CAP in section 13, the Service will not treat the plan as failing to meet the requirements of § 401(a), 403(b), 408(k), or 408(p), as applicable, because of the failure. Thus, for example, if the Plan Sponsor corrects a failure in accordance with the requirements of this revenue procedure, the plan will not thereby be treated as failing to satisfy § 401(a), 403(b), 408(k), or 408(p), as applicable, for purposes of applying §§ 3121(a)(5) (FICA taxes) and 3306(b)(5) (FUTA taxes).

.02 Compliance statement. If a Plan Sponsor or Eligible Organization receives a compliance statement under VCP, the compliance statement is binding upon the Service and the Plan Sponsor or Eligible Organization as provided in section 10.08.

.03 Excise and other taxes. See section 6.09 for rules relating to excise and other taxes.

.04 Reliance. Taxpayers may rely on this revenue procedure, including the relief described in section 3.01.

SECTION 4. PROGRAM ELIGIBILITY

.01 EPCRS Programs. (1) SCP. SCP is available only for Operational Failures. Qualified Plans and 403(b) Plans are eligible for SCP with respect to significant and insignificant Operational Failures. SEPs and SIMPLE IRA Plans are eligible for SCP only with respect to insignificant Operational Failures.

(2) VCP. Qualified Plans, 403(b) Plans, SEPs, and SIMPLE IRA Plans are eligible for VCP. VCP provides general procedures for correction of all Qualification Failures: Operational, Plan Document, Demographic, and Employer Eligibility. VCP also provides general procedures for the correction of participant loans that did not comply with the requirements of § 72(p)(2).

(3) Audit CAP. Unless otherwise provided, Audit CAP is available for Qualified Plans, 403(b) Plans, SEPs, and SIMPLE IRA Plans for correction of all failures found on examination that have not been corrected in accordance with SCP or VCP. Audit CAP also provides general procedures for the correction of participant loans that did not comply with the requirements of § 72(p)(2).

(4) Eligibility for other arrangements. The Service may extend EPCRS to other arrangements.

(5) Appropriate use of programs. In a particular case, the Service may decline to make available one or more correction programs under EPCRS in the interest of sound tax administration.

.02 Effect of examination. If the plan or Plan Sponsor is Under Examination, VCP is not available and SCP is only available as follows: while the plan or Plan Sponsor is Under Examination, insignificant Operational Failures can be corrected under SCP; and, if correction of significant operational failures has been completed or substantially completed (as described in section 9.04) before the plan or Plan Sponsor is Under Examination, correction of those failures can be completed under SCP.

.03 Favorable Letter requirement. The provisions of SCP relating to significant Operational Failures (see section 9) are available for Qualified Plans and 403(b) Plans only if the plans are the subject of a Favorable Letter. (See section 6.10(2) for rules treating a 403(b) Plan as having a Favorable Letter.) The provisions of SCP relating to insignificant Operational Failures (see section 8) are available for a SEP only if the plan document consists of either (i) a valid Model Form 5305-SEP or 5305A-SEP adopted by an employer in accordance with the instructions on the applicable form (see Rev. Proc. 2002-10, 2002-1 C.B. 401) or (ii) a prototype SEP that has a current favorable opinion letter that has been amended in accordance with the procedures set forth in Rev. Proc. 2002-10. The provisions of SCP relating to insignificant Operational Failures (see section 8) are available for a SIMPLE IRA Plan only if the plan document consists of either (i) a valid Model Form 5305-SIMPLE or 5304-SIMPLE adopted by an employer in accordance with the instructions on the applicable form (see Rev. Proc. 2002-10) or (ii) a current favorable opinion letter for a Plan Sponsor that has adopted a prototype SIMPLE IRA Plan that has been amended in accordance with the procedures set forth in Rev. Proc. 2002-10.

.04 Established practices and procedures. In order to be eligible for SCP, the Plan Sponsor or administrator of a plan must have established practices and procedures (formal or informal) reasonably designed to promote and facilitate overall compliance with applicable Code requirements. For example, the plan administrator of a Qualified Plan that may be top-heavy under § 416 may include in its plan operating manual a specific annual step to determine whether the plan is top-heavy and, if so, to ensure that the minimum contribution requirements of the top-heavy rules are satisfied. A plan document alone does not constitute evidence of established procedures. In order for a Plan Sponsor or administrator to use SCP, these established procedures must have been in place and routinely followed, and an Operational Failure must have occurred through an oversight or mistake in applying them. SCP may also be used in situations where the Operational Failure occurred because the procedures that were in place, while reasonable, were not sufficient to prevent the occurrence of the failure. A plan that provides for elective deferrals and nonelective employer contributions that are not matching contributions is not treated as failing to have established practices and procedures to prevent the occurrence of a § 415(c) violation in the case of a plan under which excess annual additions under § 415(c) are regularly corrected by return of elective deferrals to the affected employee within two and one-half months after the end of the plan's limitation year. The correction, however, should not violate another applicable Code requirement. In the case of a failure that relates to Transferred Assets or to a plan assumed in connection with a corporate merger, acquisition, or other similar employer transaction between the Plan Sponsor and the sponsor of the transferor plan or the prior Plan Sponsor of an assumed plan, the plan is considered to have established practices and procedures for the Transferred Assets if such practices and procedures are in effect for the Transferred Assets by the end of the first plan year that begins after the corporate merger, acquisition, or other similar transaction. (See section 6.10(2) for special rules regarding established practices and procedures for 403(b) Plans.)

.05 Correction by plan amendment. (1) Availability of correction by plan amendment in VCP and Audit CAP. A Plan Sponsor may use VCP and Audit CAP for a Qualified Plan or 403(b) Plan to correct Plan Document, Demographic, and Operational Failures by a plan amendment, including correcting an Operational Failure by a plan amendment to conform the terms of the plan to the plan's prior operations, provided that the amendment complies with the applicable Code requirements, including, for a Qualified Plan, § 401(a) (including the requirements of §§ 401(a)(4), 410(b), and 411(d)(6)). In addition, a Plan Sponsor may adopt a plan amendment to reflect the corrective action. For example, if the plan failed to satisfy the actual deferral percentage (ADP) test required under § 401(k)(3) and the Plan Sponsor must make qualified nonelective contributions not already provided for under the plan, the plan may be amended to provide for qualified nonelective contributions. Except as provided in section 6.05, the issuance of a compliance statement does not constitute a determination as to the effect of any plan amendment on the qualification of the plan.

(2) Availability of correction by plan amendment in SCP. A Plan Sponsor may use SCP for a Qualified Plan or 403(b) Plan to correct an Operational Failure by a plan amendment in order to conform the terms of the plan to the plan's prior operations only with respect to Operational Failures listed in section 2.07 of Appendix B. These failures must be corrected in accordance with the correction methods set forth in section 2.07 of Appendix B. Any plan amendment must comply with the requirements of § 401(a), including the requirements of §§ 401(a)(4), 410(b), and 411(d)(6), to the extent applicable to the plan. If a Plan Sponsor corrects an Operational Failure in accordance with the approved correction methods under Appendix B, it may amend the plan to reflect the corrective action. For example, if the plan failed to satisfy the actual deferral percentage (ADP) test required under § 401(k)(3) and the Plan Sponsor makes qualified nonelective contributions not already provided for under the plan, the plan may be amended to provide for qualified nonelective contributions. SCP is not otherwise available for a Plan Sponsor to correct an Operational Failure by a plan amendment.

.06 Availability of correction for Employer Eligibility Failure. SCP is not available for a Plan Sponsor to correct an Employer Eligibility Failure.

.07 Availability of correction for a terminated plan. Correction of Qualification Failures and 403(b) Failures in a terminated plan may be made under VCP and Audit CAP, whether or not the plan trust or contract is still in existence.

.08 Availability of correction for an Orphan Plan. A failure in an Orphan Plan that is terminating may only be corrected under VCP and Audit CAP, provided that the party acting on behalf of the plan is an Eligible Party, as defined in section 5.03(2). See section 6.02(2)(e)(ii). SCP is not available for correcting failures in Orphan Plans.

.09 Availability of correction for § 457 plans. Submissions relating to § 457(b) will be accepted by the Service on a provisional basis outside of EPCRS through standards that are similar to EPCRS. The availability of correction is generally limited to plans that are sponsored by governmental entities described in § 457(e)(1)(A). In the case of a § 457(b) plan that is an unfunded deferred compensation plan established for the benefit of top hat employees of a tax-exempt entity described in § 457(e)(1)(B), the Service generally will not enter into an agreement to address problems associated with such a plan. However, the Service may consider a submission where, for example, the plan was erroneously established to benefit the entity's nonhighly compensated employees and the plan has been operated in a manner that is similar to a Qualified Plan.

.10 Submission for a determination letter. In any case in which correction of a Qualification Failure includes correction of a Plan Document Failure, Demographic Failure, or Operational Failure by plan amendment, a determination letter application may be required. See section 6.05.

.11 Egregious failures. SCP is not available to correct Operational Failures that are egregious. Egregious failures include: (a) a plan that has consistently and improperly covered only highly compensated employees; (b) a plan that provides more favorable benefits for an owner of the employer based on a purported collective bargaining agreement where there has in fact been no good faith bargaining between bona fide employee representatives and the employer (see Notice 2003-24, 2003-1 C.B. 853, with respect to welfare benefit funds); or (c) a defined contribution plan where a contribution is made on behalf of a highly compensated employee that is several times greater than the dollar limit set forth in § 415(c). VCP is available to correct egregious failures. However, egregious failures are subject to the VCP fees described in section 12.06 and, for purposes of section 12.06, an egregious failure would include any case in which the IRS concludes that the parties controlling the plan recognized that the action taken would constitute a failure and the failure either involves a substantial number of participants or beneficiaries or involves participants who are predominantly highly compensated employees. Audit CAP also is available to correct egregious failures.

.12 Diversion or misuse of plan assets. SCP, VCP, and Audit CAP are not available to correct failures relating to the diversion or misuse of plan assets.

.13 Abusive tax avoidance transactions. (1) Effect on Programs. (a) SCP. With respect to SCP, in the event that the plan or the Plan Sponsor has been a party to an abusive tax avoidance transaction (as defined in section 4.13(2)), SCP is not available to correct any Operational Failure that is directly or indirectly related to the abusive tax avoidance transaction.

(b) VCP. With respect to VCP, if the Service determines that a plan or Plan Sponsor was, or may have been, a party to an abusive tax avoidance transaction (as defined in section 4.13(2)), then the matter will be referred to the Internal Revenue Service's Employee Plans' Tax Shelter Coordinator. Upon receiving a response from the Tax Shelter Coordinator, the Service may determine that the plan or the Plan Sponsor has been a party to an abusive tax avoidance transaction, and that the failures addressed in the VCP submission are related to that transaction. In those situations, the Service will conclude the review of the submission without issuing a compliance statement and will refer the case for examination. However, if the Tax Shelter Coordinator determines that the plan failures are unrelated to the abusive tax avoidance transaction or that no abusive tax avoidance transaction occurred, then the Service will continue to address the failures identified in the VCP submission, and may issue a compliance statement with respect to those failures. In no event may a compliance statement be relied on for the purpose of concluding that the plan or Plan Sponsor was not a party to an abusive tax avoidance transaction. In addition, even if it is concluded that the failures can be addressed pursuant to a VCP submission, the Service reserves the right to make a referral of the abusive tax avoidance transaction matter for examination.

(c) Audit CAP and SCP (for plans Under Examination). (1) For plans Under Examination, if the Service determines that the plan or Plan Sponsor was, or may have been, a party to an abusive tax avoidance transaction, the matter may be referred to the Internal Revenue Service's Employee Plans' Tax Shelter Coordinator. With respect to plans Under Examination, an abusive tax avoidance transaction includes a transaction described in section 4.13(2) and any other transaction that the Service determines was designed to facilitate the impermissible avoidance of tax. Upon receiving a response from the Tax Shelter Coordinator, (i) if the Service determines that a failure is related to the abusive tax avoidance transaction, the Service reserves the right to conclude that neither Audit CAP nor SCP is available for that failure or (ii) if the Service determines that satisfactory corrective actions have not been taken with regard to the transaction, the Service reserves the right to conclude that neither Audit CAP nor SCP is available to the plan.

(2) Abusive tax avoidance transaction defined. For purposes of section 4.13(1) (except to the extent otherwise provided in section 4.13(1)(c)), an abusive tax avoidance transaction means any listed transaction under § 1.6011-4(b)(2) and any other transaction identified as an abusive transaction on the IRS web site entitled "EP Abusive Tax Transactions."

PART III. DEFINITIONS, CORRECTION PRINCIPLES, AND RULES OF GENERAL APPLICABILITY

SECTION 5. DEFINITIONS

The following definitions apply for purposes of this revenue procedure:

.01 Definitions for Qualified Plans. The definitions in this section 5.01 apply to Qualified Plans.

(1) Qualified Plan. The term "Qualified Plan" means a plan intended to satisfy the requirements of § 401(a) or 403(a).

(2) Qualification Failure. The term "Qualification Failure" means any failure that adversely affects the qualification of a plan. There are four types of Qualification Failures: (a) Plan Document Failures; (b) Operational Failures; (c) Demographic Failures; and (d) Employer Eligibility Failures.

(a) Plan Document Failure. The term "Plan Document Failure" means a plan provision (or the absence of a plan provision) that, on its face, violates the requirements of § 401(a) or 403(a). Thus, for example, the failure of a plan to be amended to reflect a new qualification requirement within the plan's applicable remedial amendment period under § 401(b) is a Plan Document Failure. Similarly, if a plan has not been timely and properly amended during an applicable remedial amendment period for adopting good faith or interim amendments with respect to disqualifying provisions, as described in § 1.401(b)-1(b)(1) of the Income Tax Regulations, the plan has a Plan Document Failure. For purposes of this revenue procedure, a Plan Document Failure includes any Qualification Failure that is a violation of the requirements of § 401(a) or 403(a) and that is not an Operational Failure, Demographic Failure, or Employer Eligibility Failure.

(b) Operational Failure. The term "Operational Failure" means a Qualification Failure (other than an Employer Eligibility Failure) that arises solely from the failure to follow plan provisions. A failure to follow the terms of the plan providing for the satisfaction of the requirements of § 401(k) and (m) is considered to be an Operational Failure. A plan does not have an Operational Failure to the extent the plan is permitted to be amended retroactively to reflect the plan's operations (e.g., pursuant to § 401(b)). In the situation where a Plan Sponsor timely adopted a good faith, interim, or discretionary amendment (as provided in sections 2.07, 2.08, 2.09, and 5 of Rev. Proc. 2007-44) and the plan was not operated in accordance with the terms of such amendment, the plan is considered to have an Operational Failure.

(c) Demographic Failure. The term "Demographic Failure" means a failure to satisfy the requirements of § 401(a)(4), 401(a)(26), or 410(b) that is not an Operational Failure or an Employer Eligibility Failure. The correction of a Demographic Failure generally requires a corrective amendment to the plan adding more benefits or increasing existing benefits (see § 1.401(a)(4)-11(g)).

(d) Employer Eligibility Failure. The term "Employer Eligibility Failure" means the adoption of a plan intended to include a qualified cash or deferred arrangement under § 401(k) by an employer that fails to meet the employer eligibility requirements to establish a § 401(k) plan. An Employer Eligibility Failure is not a Plan Document, Operational, or Demographic Failure.

(3) Excess Amount; Excess Allocations; Overpayment. (a) Excess Amount. The term "Excess Amount" means a Qualification Failure due to a contribution, allocation, or similar credit that is made on behalf of a participant or beneficiary to a plan in excess of the maximum amount permitted to be contributed, allocated, or credited on behalf of the participant or beneficiary under the terms of the plan or that exceeds a limitation on contributions or allocations provided in the Code or regulations. Excess Amounts include: (i) an elective deferral or after-tax employee contribution that is in excess of the maximum contribution under the plan; (ii) an elective deferral or after-tax employee contribution made in excess of the limitation under § 415; (iii) an elective deferral in excess of the limitation of § 402(g); (iv) an excess contribution or excess aggregate contribution under § 401(k) or (m); (v) an elective deferral or after-tax employee contribution that is made with respect to compensation in excess of the limitation of § 401(a)(17); and (vi) any other employer contribution that exceeds a limitation under § 401(a)(17), 401(m) (but only with respect to the forfeiture of nonvested matching contributions that are excess aggregate contributions), 411(a)(3)(G), or 415. However, an Excess Amount does not include a contribution, allocation, or other credit that is made pursuant to a correction method provided under this revenue procedure for a different Qualification Failure. Excess Amounts are limited to contributions, allocations, or annual additions under a defined contribution plan, after-tax employee contributions to a defined benefit plan, and contributions or allocations that are to be made to a separate account (with actual Earnings) under a defined benefit plan. See generally section 6.06 for the treatment and correction of certain Excess Amounts.

(b) Excess Allocation. The term "Excess Allocation" means an Excess Amount for which the Code or regulations do not provide any corrective mechanism. Excess Allocations include Excess Amounts as defined in section 5.01(3)(a)(i), (ii), (v), and (vi) (except with respect to § 401(m) or 411(a)(3)(G) violations). Excess Allocations must be corrected in accordance with section 6.06(2).

(c) Overpayment. The term "Overpayment" means a Qualification Failure due to a payment being made to a participant or beneficiary that exceeds the amount payable to the participant or beneficiary under the terms of the plan or that exceeds a limitation provided in the Code or regulations. Overpayments include both payments from a defined benefit plan and payments from a defined contribution plan (either not made from the participant's or beneficiary's account under the plan or not permitted to be paid under the Code, the regulations, or the terms of the plan). However, an Overpayment does not include a payment that is made pursuant to a correction method provided under this revenue procedure for a different Qualification Failure. Overpayments must be corrected in accordance with section 6.06(3).

(4) Favorable Letter. The term "Favorable Letter" means, in the case of a Qualified Plan, a current favorable determination letter for an individually designed plan (including a volume submitter plan that is not identical to an approved volume submitter plan), a current favorable opinion letter for a Plan Sponsor that has adopted a master or prototype plan (standardized or nonstandardized), or a current favorable advisory letter and certification that the Plan Sponsor has adopted a plan that is identical to an approved volume submitter plan. A plan has a current favorable determination letter, opinion letter, or advisory letter if (a), (b), or (c) below is satisfied:

(a) The plan has a favorable determination letter, opinion letter, or advisory letter that considers the law changes incorporated in the Plan Sponsor's most recently expired remedial amendment cycle determined under the provisions of Rev. Proc. 2007-44.

(b) The plan is initially adopted or effective after December 31, 2001, and the Plan Sponsor timely submits an application for a determination letter or adopts an approved master or prototype plan or volume submitter plan within the plan's remedial amendment period under § 401(b).

(c) The plan is terminated prior to the expiration of the plan's current remedial amendment cycle determined under the provisions of Rev. Proc. 2007-44, and the plan was amended to reflect the qualification requirements that applied as of the date of termination.

(5) Maximum Payment Amount. The term "Maximum Payment Amount" means a monetary amount that is approximately equal to the tax the Service could collect upon plan disqualification and is the sum for the open taxable years of the:

(a) tax on the trust (Form 1041) (and any interest or penalties applicable to the trust return),

(b) additional income tax resulting from the loss of employer deductions for plan contributions (and any interest or penalties applicable to the Plan Sponsor's return),

(c) additional income tax resulting from income inclusion for participants in the plan (Form 1040), including the tax on plan distributions that have been rolled over to other qualified trusts (as defined in § 402(c)(8)(A)) or eligible retirement plans (as defined in § 402(c)(8)(B)) and any interest or penalties applicable to the participants' returns, and

(d) any other tax that results from a Qualification Failure that would apply but for correction under this revenue procedure.

(6) Plan Sponsor. The term "Plan Sponsor" means the employer that establishes or maintains a Qualified Plan for its employees.

(7) Transferred Assets.The term "Transferred Assets" means plan assets that were received, in connection with a corporate merger, acquisition, or other similar employer transaction, by the plan in a transfer (including a merger or consolidation of plan assets) under § 414(l) from a plan sponsored by an employer that was not a member of the same controlled group as the Plan Sponsor immediately prior to the corporate merger, acquisition, or other similar employer transaction. If a transfer of plan assets related to the same employer transaction is accomplished through several transfers, then the date of the transfer is the date of the first transfer.

.02 Definitions for 403(b) Plans. The definitions in this section 5.02 apply to 403(b) Plans.

(1) 403(b) Plan. The term "403(b) Plan" means a plan or program intended to satisfy the requirements of § 403(b).

(2) 403(b) Failure. The term 403(b) Failure" means a failure that adversely affects the exclusion from income provided by § 403(b). There are four types of 403(b) Failures: (a) Plan Document Failures; (b) Operational Failures; (c) Demographic Failures; and (d) Employer Eligibility Failures.

(a) Plan Document Failure. The term "Plan Document Failure" means a plan provision (or the absence of a plan provision) that, on its face, violates the requirements of § 403(b). Thus, for example, the failure of a plan to be adopted in written form or to be amended to reflect a new requirement within the plan's applicable remedial amendment period is a Plan Document Failure. If a plan has not been timely or properly amended during an applicable remedial amendment period with respect to provisions required to maintain the status of the plan under § 403(b), the plan has a Plan Document Failure. For purposes of this revenue procedure, a Plan Document Failure includes any 403(b) Failure that adversely affects the status of the plan under § 403(b) and that is not an Operational Failure, Demographic Failure, or Employer Eligibility Failure.

(b) Operational Failure. The term "Operational Failure" means a 403(b) Failure (other than an Employer Eligibility Failure) that arises solely from the failure to follow plan provisions. A failure to follow the terms of the plan providing for the satisfaction of the requirements of §§ 403(b)(12)(ii) (relating to the availability of elective deferral contributions) and 401(m) (as applied to 403(b) Plans pursuant to § 403(b)(12)(A)(i)) is an Operational Failure. A plan does not have an Operational Failure to the extent the plan is permitted to be amended retroactively to reflect the plan's operations.

(c) Demographic Failure. The term "Demographic Failure" means a failure to satisfy the requirements of § 401(a)(4), 401(a)(26), or 410(b) (as applied to 403(b) Plans pursuant to § 403(b)(12)(A)(i)) that is not a Operational Failure or an Employer Eligibility Failure. The correction of a Demographic Failure generally requires a corrective amendment to the plan adding more benefits or increasing existing benefits (see § 1.401(a)(4)-11(g)).

(d) Employer Eligibility Failure. The term "Employer Eligibility Failure" means the adoption of a plan intended to satisfy the requirements of § 403(b) by a Plan Sponsor that is not a tax-exempt organization described in § 501(c)(3) or a public educational organization described in § 170(b)(1)(A)(ii). An Employer Eligibility Failure is not a Plan Document, Operational, or Demographic Failure.

(e) Effective date. See section 16 for special rules for 403(b) failures that occurred prior to January 1, 2009.

(3) Excess Amount. The term "Excess Amount" means a contribution or other credit that is made on behalf of a participant or beneficiary to a plan in excess of the maximum amount permitted to be contributed or credited on behalf of the participant or beneficiary under the terms of the plan or that exceeds a limitation on contributions provided in the Code or regulations. The term "Excess Amount" includes any amount in excess of the amount permitted under the requirements of § 402(g), 401(m), or 415. A contribution in excess of the limitation of 415(c) is not an Excess Amount (or a 403(b) Failure) if that excess is maintained in a separate account in accordance with the rules in the regulations under §§ 403(b) and 415. Such separate account is considered to be a § 403(c) annuity contract (or, if applicable, an amount to which § 61, 83, or 402(b) applies). A contribution in excess of the limitation of § 415(c) that is not maintained in a separate account in accordance with the rules set forth in regulations under §§ 403(b) and 415 is an Excess Amount. Thus, the correction principles in section 6.06 apply.

(4) Overpayment. The term "Overpayment" means a 403(b) Failure due to a payment being made to a participant or beneficiary that exceeds the amount payable to the participant or beneficiary under the terms of the plan or that exceeds a limitation provided in the Code or regulations. Overpayments include both payments either made from the participant's or beneficiary's 403(b) custodial account or annuity contract under the plan or not permitted to be paid under the Code, the regulations, or the terms of the plan. However, an Overpayment does not include a payment that is made pursuant to a correction method provided under this revenue procedure for a different 403(b) Failure. Overpayments must be corrected in accordance with section 6.06(4).

(5) Favorable Letter. The term "Favorable Letter" means a Favorable Letter as described in section 6.10(2).

(6) Maximum Payment Amount. The term "Maximum Payment Amount" means a monetary amount that is approximately equal to the tax the Service could collect as a result of the 403(b) Failure and is the sum for the open taxable years of the:

(a) additional income tax resulting from income inclusion for employees or other participants (Form 1040), including the tax on distributions that have been rolled over to other qualified trusts (as defined in § 402(c)(8)(A)) or eligible retirement plans (as defined in § 402(c)(8)(B)) and any interest or penalties applicable to the participants' returns; and

(b) any other tax that results from a 403(b) Failure that would apply but for correction under this revenue procedure.

(7) Plan Sponsor. The term "Plan Sponsor" means the employer that offers a 403(b) Plan to its employees.

.03 Definitions for Orphan Plans.

(1) Orphan Plan. With respect to VCP and Audit CAP, the term "Orphan Plan" means any Qualified Plan, 403(b) Plan, or other plan with respect to which an "Eligible Party" (defined in section 5.03(2)) has determined that the Plan Sponsor (a) no longer exists, (b) cannot be located, or (c) is unable to maintain the plan. However, the term "Orphan Plan" does not include any plan subject to Title I of the Employee Retirement Income Security Act of 1974 ("ERISA") that is terminated pursuant to section 2578.1 of the Department of Labor regulations governing the termination of abandoned individual account plans.

(2) Eligible Party. The term "Eligible Party" means:

(a) A court appointed representative with authority to terminate the plan and dispose of the plan's assets;

(b) In the case of an Orphan Plan under investigation by the Department of Labor, a person or entity determined by the Department of Labor to have accepted responsibility for terminating the plan and distributing the plan's assets; or

(c) In the case of a Qualified Plan to which Title I of ERISA has never applied, a surviving spouse who is the sole beneficiary of a plan that provided benefits to a participant who was (i) the sole owner of the business that sponsored the plan and (ii) the only participant in the plan.

.04 Earnings. The term "Earnings" refers to the adjustment of a principal amount to reflect subsequent investment gains and losses, unless otherwise provided in a specific section of this revenue procedure.

.05 IRA. The term "IRA" means an individual retirement account (as defined in § 408(a)) or an individual retirement annuity (as defined in § 408(b)).

.06 References to Rev. Proc. 2007-44. References in sections 5.01, 6.05, 9.03, 10.05, 10.08, 11.02 and Appendix C, Section VIII of this revenue procedure to Rev. Proc. 2007-44, 2007-2 C.B. 54, include any modifications published in the Cumulative Bulletin, including any successor revenue procedure (and references to any section thereof if such references refer to the successor section in any successor revenue procedure). For example, see Rev. Proc. 2009-36, 2009-35 I.R.B. 304, which modifies Rev. Proc. 2007-44 for the determination of the remedial amendment cycle for a governmental plan within the meaning of § 414(d).

.07 SEP. The term "SEP" means a plan intended to satisfy the requirements of § 408(k). For purposes of this revenue procedure, the term SEP also includes a salary reduction SEP ("SARSEP") described in § 408(k)(6), if applicable.

.08 SIMPLE IRA Plan. The term "SIMPLE IRA Plan" means a plan intended to satisfy the requirements of § 408(p).

.09 Under Examination. (1) The term "Under Examination" means: (a) a plan that is under an Employee Plans examination (that is, an examination of a Form 5500 series or other Employee Plans examination); (b) a Plan Sponsor that is under an Exempt Organizations examination (that is, an examination of a Form 990 series or other Exempt Organizations examination); or (c) a plan that is under investigation by the Criminal Investigation Division of the Service.

(2) 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 Employee Plans of an impending Employee Plans examination, or of an impending referral for an Employee Plans examination, and also includes any plan that has been under an Employee Plans examination and is in Appeals or in litigation for issues raised in an Employee Plans examination. A plan is considered to be Under Examination if it is aggregated for purposes of satisfying the nondiscrimination requirements of § 401(a)(4), the minimum participation requirements of § 401(a)(26), the minimum coverage requirements of § 410(b), or the requirements of § 403(b)(12)(A)(i), with any plan that is Under Examination. In addition, a plan is considered to be Under Examination with respect to a failure of a qualification requirement (other than those described in the preceding sentence) if the plan is aggregated with another plan for purposes of satisfying that qualification requirement (for example, § 401(a)(30), 415, or 416) and that other plan is Under Examination. For example, assume Plan A has a § 415 failure, Plan A is aggregated with Plan B only for purposes of § 415, and Plan B is Under Examination. In this case, Plan A is considered to be Under Examination with respect to the § 415 failure. However, if Plan A has a failure relating to the spousal consent rules under § 417 or the vesting rules of § 411, Plan A is not considered to be Under Examination with respect to the § 417 or 411 failure. 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 § 410(b)(2).

(3) An Employee Plans examination also includes a case in which a Plan Sponsor has submitted any Form 5300, 5307, or 5310 and the Employee Plans agent notifies the Plan Sponsor, or a representative, of possible failures, whether or not the Plan Sponsor is officially notified of an "examination." This would include a case where, for example, a Plan Sponsor has applied for a determination letter on plan termination, and an Employee Plans agent notifies the Plan Sponsor that there are partial termination concerns. In addition, if, during the review process, the agent requests additional information that indicates the existence of a failure not previously identified by the Plan Sponsor, the plan is considered to be under an Employee Plans examination. If, in such a case, the determination letter request under review is subsequently withdrawn, the plan is nevertheless considered to be under an Employee Plans examination for purposes of eligibility under SCP and VCP with respect to those issues raised by the agent reviewing the determination letter application. The fact that a Plan Sponsor voluntarily submits a determination letter application does not constitute a voluntary identification of a failure to the Service. In order to be eligible for VCP, the Plan Sponsor (or the authorized representative) must identify each failure, in writing, to the reviewing agent before the agent recognizes the existence of the failure or addresses the failure in communications with the Plan Sponsor (or the authorized representative).

(4) A Plan Sponsor that is under an Exempt Organizations examination includes any Plan Sponsor that has received (or whose representative has received) verbal or written notification from Exempt Organizations of an impending Exempt Organizations examination or of an impending referral for an Exempt Organizations examination and also includes any Plan Sponsor that has been under an Exempt Organizations examination and is now in Appeals or in litigation for issues raised in an Exempt Organizations examination.

SECTION 6. CORRECTION PRINCIPLES AND RULES OF GENERAL APPLICABILITY

.01 Correction principles; rules of general applicability. The general correction principles in section 6.02 and rules of general applicability in sections 6.03 through 6.13 apply for purposes of this revenue procedure.

.02 Correction principles. Generally, a failure is not corrected unless full correction is made with respect to all participants and beneficiaries, and for all taxable years (whether or not the taxable year is closed). Even if correction is made for a closed taxable year, the tax liability associated with that year will not be redetermined because of the correction. Correction is determined taking into account the terms of the plan at the time of the failure. Correction should be accomplished taking into account the following principles:

(1) Restoration of benefits. The correction method should restore the plan to the position it would have been in had the failure not occurred, including restoration of current and former participants and beneficiaries to the benefits and rights they would have had if the failure had not occurred.

(2) Reasonable and appropriate correction. The correction should be reasonable and appropriate for the failure. Depending on the nature of the failure, there may be more than one reasonable and appropriate correction for the failure. For Qualified Plans and 403(b) Plans, any correction method permitted under Appendix A or Appendix B is deemed to be a reasonable and appropriate method of correcting the related failure. Any correction method permitted under Appendix A or Appendix B applicable to a SEP, or a SIMPLE IRA Plan is similarly deemed to be a reasonable and appropriate method of correcting the related failure. If a plan has a different but analogous failure to one set forth in Appendix A or B (such as the failure to provide a matching contribution by a governmental plan that is not subject to § 401(m)), then the analogous correction method under Appendix A or B is generally available to correct any failure. Whether any other particular correction method is reasonable and appropriate is determined taking into account the applicable facts and circumstances and the following principles:

(a) The correction method should, to the extent possible, resemble one already provided for in the Code, regulations, or other guidance of general applicability. For example, for Qualified Plans and 403(b) Plans, the correction method set forth in § 1.402(g)-1(e)(2) would be the typical means of correcting a failure under § 402(g).

(b) The correction method should keep plan assets in the plan, except to the extent the Code, regulations, or other guidance of general applicability provide for correction by distribution to participants or beneficiaries or return of assets to the employer. For example, if an excess allocation (not in excess of the § 415 limits) made under a Qualified Plan was made for a participant under a plan (other than a § 401(k) plan), the excess should be reallocated to other participants or, depending on the facts and circumstances, used to reduce future employer contributions.

(c) The correction method for failures relating to nondiscrimination should provide benefits for nonhighly compensated employees. For example, for Qualified Plans, the correction method set forth in § 1.401(a)(4)-11(g) (rather than methods making use of the special testing provisions set forth in § 1.401(a)(4)-8 or 1.401(a)(4)-9) would be the typical means of correcting a failure to satisfy nondiscrimination requirements. Similarly, the correction of a failure to satisfy the requirements of § 401(k)(3) or 401(m)(2), or, for plan years beginning on or before December 31, 2001, the multiple use test of § 401(m)(9) (relating to nondiscrimination), solely by distributing excess amounts to highly compensated employees would not be the typical means of correcting such a failure.

(d) The correction method should not violate another applicable specific requirement of § 401(a) or 403(b) (for example, § 401(a)(4), 411(d)(6), or 403(b)(12), as applicable), 408(k) for SEPs, or 408(p) for SIMPLE IRA Plans, or a parallel requirement in Part 2 of Subtitle B of Title I of ERISA (for plans that are subject to Part 2 of Subtitle B of Title I of ERISA). If an additional failure is nevertheless created as a result of the use of a correction method in this revenue procedure, then that failure also must be corrected in conjunction with the use of that correction method and in accordance with the requirements of this revenue procedure.

(e) If a correction method is one that another government agency has authorized with respect to a violation of legal requirements within its interpretive authority and that correction relates to a violation for which there is a failure to which this revenue procedure applies, then the Service may take the correction method of the other governmental agency into account for purposes of this revenue procedure. For example:

(i) If the plan is subject to ERISA, for a failure that results from the employer having ceased to exist, the employer no longer maintaining the plan, or similar reasons, the permitted correction is to terminate the plan and distribute plan assets to participants and beneficiaries in accordance with standards and procedures substantially similar to those set forth in section 2578.1 of the Department of Labor regulations (relating to abandoned plans). This correction must satisfy four conditions. First, the correction must comply with standards and procedures substantially similar to those set forth in section 2578.1 of the Department of Labor regulations (relating to abandoned plans). Second, the qualified termination administrator, based on plan records located and updated in accordance with the Department of Labor regulations, must have reasonably determined whether, and to what extent, the survivor annuity requirements of §§ 401(a)(11) and 417 apply to any benefit payable under the plan and must take reasonable steps to comply with those requirements (if applicable). Third, each participant and beneficiary must have been provided a nonforfeitable right to his or her accrued benefits as of the date of deemed termination under the Department of Labor regulations, subject to Earnings between that date and the date of distribution. Fourth, participants and beneficiaries must receive notification of their rights under § 402(f). In addition, notwithstanding correction under this revenue procedure, the Service reserves the right to pursue appropriate remedies under the Code against any party who is responsible for the plan, such as the Plan Sponsor, plan administrator, or owner of the business, even in its capacity as a participant or beneficiary under the plan. See also section .09(1) of Appendix A for parallel rules for plans that are not subject to ERISA.

(ii) In the case of a violation of the fiduciary standards imposed by Part 4 of Subtitle B of Title I of ERISA, correction under the Voluntary Fiduciary Correction Program established by the Department of Labor (at 71 FR 20262) for a fiduciary violation for which there is a similar failure under this revenue procedure would generally be taken into account as correction under this revenue procedure. (See also section 7.3(b) of the Department of Labor's Voluntary Fiduciary Correction Program under which correction of a defaulted participant loan that provides for repayment in accordance with § 72(p)(2) requires only submission of the correction under VCP and inclusion of the VCP compliance statement (with proof of any required corrective payment).)

(3) Consistency requirement. Generally, where more than one correction method is available to correct a type of Operational Failure for a plan year (or where there are alternative ways to apply a correction method), the correction method (or one of the alternative ways to apply the correction method) should be applied consistently in correcting all Operational Failures of that type for that plan year. Similarly, earnings adjustment methods generally should be applied consistently with respect to corrective contributions or allocations for a particular type of Operational Failure for a plan year. In the case of a Group Submission, the consistency requirement applies on a plan by plan basis.

(4) Principles regarding corrective allocations and corrective distributions. The following principles apply where an appropriate correction method includes the use of corrective allocations or corrective distributions:

(a) Corrective allocations under a defined contribution plan should be based upon the terms of the plan and other applicable information at the time of the failure (including the compensation that would have been used under the plan for the period with respect to which a corrective allocation is being made) and should be adjusted for Earnings and forfeitures that would have been allocated to the participant's account if the failure had not occurred. However, a corrective allocation is not required to be adjusted for losses. Accordingly, corrective allocations must include gains and may be adjusted for losses. For additional information, see Appendix B section 3 Earnings Adjustment Methods And Examples.

(b) A corrective allocation to a participant's account because of a failure to make a required allocation in a prior limitation year is not considered an annual addition with respect to the participant for the limitation year in which the correction is made, but is considered an annual addition for the limitation year to which the corrective allocation relates. However, the normal rules of § 404, regarding deductions, apply.

(c) Corrective allocations should come only from employer nonelective contributions, including forfeitures if the plan permits their use to reduce employer contributions). For purpose of correcting a failed ADP, ACP, or multiple use test, any amounts used to fund QNECs must satisfy the definition of QNEC in § 1.401(k)-6.

(d) In the case of a defined benefit plan, a corrective distribution for an individual should be increased to take into account the delayed payment, in accordance with the plan's provisions for actuarial equivalence (after considering the applicable requirements of §§ 417(e)(3) and 415(b) or any other applicable provision) that were in effect on the date that the distribution should have been made. A corrective distribution is not subject to the requirements of § 417(e)(3) if it is made to make up for missed payments with respect to a benefit that is not subject to the requirements of § 417(e)(3).

(e)(i) In the case of a single employer defined benefit plan, a payment of benefits that fails to satisfy the requirements of § 436(b), (c), or (e) can be corrected by the Plan Sponsor (including another person acting on behalf of the Plan Sponsor) making a contribution to the plan equal to the following amount (with interest up to the date of the contribution): (A) in the case of a failure to satisfy § 436(b) with respect to an unpredictable contingent event benefit, the amount described in § 436(b)(2) with respect to that benefit; (B) in the case of a failure to satisfy § 436(c) with respect to an amendment, the amount described in § 436(c)(2) with respect to that amendment; and (C) in the case of a failure to satisfy § 436(e), the amount described in § 436(e)(2) with respect to that failure. See also section 6.06(3) for correction of an Overpayment (including a payment of benefits that exceeds the limitations imposed by § 436(d) or 436(b), (c), or (e)).

(ii) A corrective distribution or a corrective amendment (where a correction is accomplished through a plan amendment) is not subject to the requirements of § 436, but, if the plan is subject to a restriction pursuant to § 436 at the time of the correction, generally the Plan Sponsor must make a contribution to the plan at the time of the correction in the following amount: (A) if a corrective distribution is made in a single-sum payment or other prohibited payment (as defined in § 436(d)(5)) at a time when the plan is subject to a restriction pursuant to § 436(d), the Plan Sponsor must generally contribute to the plan the amount of that corrective distribution (but only half of the corrective distribution must be contributed if the payment is made at a time when the plan is subject to a restriction pursuant to § 436(d)(3)); and (B) if a corrective amendment is made at a time when the plan is subject to a restriction pursuant to § 436(c), the Plan Sponsor must generally contribute to the plan an amount equal to the increase in the funding target of the plan (as defined in § 430) attributable to that amendment. No contribution is required to be made under this paragraph (e)(ii) if the corrective distribution is made in a form that is not a prohibited payment (for example, if the correction is made by actuarially increasing future payments that are made in a form that is not a prohibited payment).

(iii) Any contribution made by the Plan Sponsor pursuant to this paragraph (e) is treated in the same manner as a "section 436 contribution" (as defined in § 1.436-1(j)(7)). Thus, the contribution is treated as separate from a minimum required contribution under § 430 and is disregarded in determining the amount added to a prefunding balance under § 430(f)(6). See § 1.436-1(f)(2) generally for rules relating to § 436 contributions.

(f) In the case of a defined contribution plan, a corrective contribution or distribution should be adjusted for Earnings from the date of the failure (determined without regard to any Code provision which permits a corrective contribution or distribution to be made at a later date).

(5) Special exceptions to full correction. In general, a failure must be fully corrected. Although the mere fact that correction is inconvenient or burdensome is not enough to relieve a Plan Sponsor of the need to make full correction, full correction may not be required in certain situations if it is unreasonable or not feasible. Even in these situations, the correction method adopted must be one that does not have significant adverse effects on participants and beneficiaries or the plan, and that does not discriminate significantly in favor of highly compensated employees. The exceptions described below specify those situations in which full correction is not required.

(a) Reasonable estimates. If either (i) it is possible to make a precise calculation but the probable difference between the approximate and the precise restoration of a participant's benefits is insignificant and the administrative cost of determining precise restoration would significantly exceed the probable difference or (ii) it is not possible to make a precise calculation (for example, where it is impossible to provide plan data), reasonable estimates may be used in calculating appropriate correction. If it is not feasible to make a reasonable estimate of what the actual investment results would have been, a reasonable interest rate may be used. For this purpose, the interest rate used by the Department of Labor's Voluntary Fiduciary Correction Program Online Calculator ("VFCP Online Calculator") is deemed to be a reasonable interest rate. The VFCP Online Calculator can be found on the internet at http://www.dol.gov/ebsa/calculator.

(b) Delivery of small benefits. If the total corrective distribution due a participant or beneficiary is $75 or less, the Plan Sponsor is not required to make the corrective distribution if the reasonable direct costs of processing and delivering the distribution to the participant or beneficiary would exceed the amount of the distribution. This section 6.02(5)(b) does not apply to corrective contributions. Corrective contributions are required to be made with respect to a participant with an account under the plan.

(c) Recovery of small Overpayments. Generally, if the total amount of an Overpayment to a participant or beneficiary is $100 or less, the Plan Sponsor is not required to seek the return of the Overpayment from the participant or beneficiary. The Plan Sponsor is not required to notify the participant or beneficiary that the Overpayment is not eligible for favorable tax treatment accorded to distributions from the plan (and, specifically, is not eligible for tax-free rollover).

(d) Locating lost participants. (i) Reasonable actions must be taken to find all current and former participants and beneficiaries to whom additional benefits are due, but who have not been located after a mailing to the last known address. In general, such actions include, but are not limited to, a mailing to the individual's last known address using certified mail, and, if that is unsuccessful, an additional search method, such as the use of the Social Security letter forwarding program, a commercial locator service, a credit reporting agency, or Internet search tools. Depending on the facts and circumstances, the use of more than one of these additional search methods may be appropriate. A plan will not be considered to have failed to correct a failure due to the inability to locate an individual if reasonable actions to locate the individual have been undertaken in accordance with this paragraph; provided that, if the individual is later located, the additional benefits are provided to the individual at that time.

(ii) The IRS Letter Forwarding Program is no longer available as a means to search for participants and beneficiaries to whom additional benefits under the plan are due. Any request for locater services received by the Service on or after August 31, 2012 will not be processed. See Rev. Proc. 2012-35, 2012-37 I.R.B. 341.

(iii) A Plan Sponsor described in (A) or (B) of this section 6.02(5)(d)(iii)) that is correcting failures that require payment of additional benefits to participants and beneficiaries will have until the earlier of: a) May 30, 2013, or b) if a request under the IRS Letter Forwarding Program has been submitted on or after August 31, 2012, 150 days after the date of notification by the Service that the request to locate missing participants and beneficiaries will not be processed, to take other reasonable actions in accordance with section 6.02(5)(d)(i) to locate participants and beneficiaries to whom additional benefits are due. A Plan Sponsor is described in this section 6.02(5)(d)(iii) if it:

(f) Orphan Plans. The Service retains the discretion to determine under VCP and Audit CAP whether full correction will be required with respect to a terminating Orphan Plan.

(6) Correction principle for loan failures. In the case of a loan failure corrected in accordance with section 6.07(2)(b) or (c) and section 6.07(3), the participant is generally responsible for paying the corrective payment. However, with respect to the failure listed in section 6.07(3), the employer should pay a portion of the correction payment on behalf of the participant equal to the interest that accumulates as a result of such failure -- generally determined at a rate equal to the greater of the plan loan interest rate or the rate of return under the plan.

(7) Correction for exclusion of employees with respect to elective deferrals or after-tax employee contributions. If a Qualified Plan or 403(b) Plan has an Operational Failure that consists of excluding an employee that should have been eligible to make an elective deferral or an after-tax employee contribution, the employer should contribute to the plan on behalf of the excluded employee an amount that makes up for the value of the lost opportunity for the employee to have a portion of his or her compensation contributed to the plan accumulated with earnings tax deferred in the future. This correction principle applies solely to this limited circumstance. It does not, for example, extend to the correction of a failure to satisfy a nondiscrimination test, e.g., the ADP test pursuant to § 401(k)(3) and the ACP test pursuant to § 401(m)(2). Specific methods and examples to correct this failure are provided in Appendix A, section .05, and Appendix B, section 2.02. Similarly, the methods and examples provided for correcting this failure do not extend to other failures. Thus, the correction methods and the examples in Appendix A, section .05, and Appendix B, section 2.02, cannot, for example, be used to correct ADP/ACP failures.

(8) Correction by plan amendment in VCP, Audit CAP, and SCP. For the availability of correction by plan amendment, see section 4.05.

(9) Reporting. Any corrective distributions from the plan should be properly reported.

.03 Correction of an Employer Eligibility Failure. (1) The permitted correction of an Employer Eligibility Failure is the cessation of all contributions (including elective deferrals and after-tax employee contributions). For VCP submissions, the cessation must occur no later than the date the submission under VCP is filed. The assets in such a plan are to remain in the trust, annuity contract, or custodial account and are to be distributed no earlier than the occurrence of one of the applicable distribution events, e.g., for 403(b) Plans, an event described in § 403(b)(7) (to the extent the assets are held in custodial accounts) or § 403(b)(11) (for those assets invested in annuity contracts that would be subject to § 403(b)(11) restrictions if the employer were eligible).

(2) Cessation of contributions is not required if continuation of contributions would not be an Employer Eligibility Failure (for example, with respect to a tax-exempt employer that may maintain a § 401(k) plan after 1996). In the case of a 403(b) Failure which is an Employer Eligibility Failure, correction may include treating contributions as not being excluded under § 403(b) (and thus the contributions would be treated as having been contributed, for example, to an annuity contract to which § 403(c) applies).

(3) A plan that is corrected through VCP or Audit CAP is treated as subject to all of the requirements and provisions of §§ 401(a) for a Qualified Plan, 403(b) for a 403(b) Plan, 408(k) for a SEP, and 408(p) for a SIMPLE IRA Plan (including Code provisions relating to rollovers). Therefore, the Plan Sponsor must also correct all other failures in accordance with this revenue procedure.

(4) If correction is accomplished under VCP or Audit CAP in accordance with the requirements of this section 6.03, then any rollovers made from the plan pursuant to a distributable event are deemed to have been made from an eligible retirement plan under § 402(c)(8)(B) for the purpose of determining whether the amounts qualify as an eligible rollover distribution under § 402(c) or 403(b)(8) (including the determination of excess contributions that are subject to the § 4973 excise tax).

.04 Correction of a failure to obtain spousal consent. (1) Normally, the correction method under VCP for a failure to obtain spousal consent for a distribution that is subject to the spousal consent rules under §§ 401(a)(11) and 417 is similar to the correction method described in Appendix A, section .07. The Plan Sponsor must notify the affected participant and spouse (to whom the participant was married at the time of the distribution), so that the spouse can provide spousal consent to the distribution actually made or the participant may repay the distribution and receive a qualified joint and survivor annuity.

(2)(a) As alternatives to the correction method in section 6.04(1), correction for a failure to obtain spousal consent may be made under either section 6.04(2)(b) or section 6.04(2)(c).

(b) In the event that spousal consent to the prior distribution is not obtained (e.g., because the spouse chooses not to consent, the spouse does not respond to the notice, or the spouse cannot be located), the spouse is entitled to a benefit under the plan equal to the portion of the qualified joint and survivor annuity that would have been payable to the spouse upon the death of the participant had a qualified joint and survivor annuity been provided to the participant under the plan at the annuity starting date for the prior distribution. Such spousal benefit must be provided if a claim is made by the spouse.

(c) In the event that spousal consent to the prior distribution is not obtained, the plan may offer the spouse the choice between (i) the survivor annuity benefit described in section 6.04(2)(b) or (ii) a single-sum payment equal to the actuarial present value of that survivor annuity benefit (calculated using the applicable interest rate and mortality table under § 417(e)(3)). Any such single-sum payment is treated in the same manner as a distribution under § 402(c)(9) for purposes of rolling over the payment to an IRA or other eligible retirement plan. In the event that the plan is subject to a restriction on the payment of single sums pursuant to § 436(d) at the time the plan offers this choice to the spouse and the spouse elects to receive a single-sum payment, the plan sponsor must contribute to the plan the applicable amount under section 6.02(4)(e)(ii)(A).

.05 Submission of a determination letter application. (1) In general. This section 6.05 sets forth the situations in which a determination letter application is required to be submitted as part of the correction of a Qualification Failure if the correction includes a plan amendment. If a determination letter application is required under this section 6.05, then, unless otherwise specified in this revenue procedure, the provisions of Rev. Proc. 2007-44 will apply. Thus, for example, in the case of an ongoing individually designed plan, a determination letter application will be reviewed with respect to all items included in the Cumulative List (as defined in Rev. Proc. 2007-44) that would apply to the remedial amendment cycle during which the determination letter is filed. Notwithstanding any other part of this section 6.05, a determination letter application is not required and may not be submitted with the VCP submission if (a) the correction by plan amendment is achieved through (i) the adoption of an amendment that is designated as a model amendment by the Service or (ii) the adoption of a prototype or volume submitter plan with an opinion or advisory letter as provided in Rev. Proc. 2012-6, 2012-1 I.R.B. 197, on which the Plan Sponsor has reliance (or is treated as having reliance pursuant to section 6.05(5) below), or (b) the failure corrected is a Demographic Failure.

(2) Determination letter application required. (a) VCP and Audit CAP. (i) Operational failure corrected by plan amendment during on-cycle year. Except as provided in section 6.05(1), to correct an Operational Failure that includes a plan amendment (in a case where the Plan Sponsor submits the failure under VCP or corrects the failure under Audit CAP during an on-cycle year or in connection with a plan termination), a determination letter application is required. An "on-cycle year" means the last 12 months of the plan's remedial amendment cycle set forth in Rev. Proc. 2007-44.

(ii) Nonamender failure. Except as provided in section 6.05(1) and (3)(a), a determination letter application is required in order to correct a nonamender failure under VCP or Audit CAP, whether or not the plan is submitted under VCP or corrected under Audit CAP during an on-cycle year. For this purpose, the term "nonamender failure" means a failure to amend the plan to correct a disqualifying provision described in § 1.401(b)-1(b) within the applicable remedial amendment period. In general, a disqualifying provision includes a provision in the plan document that violates a qualification requirement of the Code or the absence of a provision that causes the plan to fail to satisfy a qualification requirement of the Code. A disqualifying provision also includes any provision designated by the Commissioner as a disqualifying provision under § 1.401(b)-1(b)(3).

(b) SCP. Except as provided in section 6.05(1), in the case of any correction of an Operational Failure through plan amendment under SCP that is permitted under section 4.05(2) of this revenue procedure, a Plan Sponsor must submit a determination letter application for the plan, including the corrective plan amendment, during the plan's next on-cycle year, or if earlier, in connection with the plan's termination. The determination letter application should be mailed to the address provided in the instructions for the applicable Form 5300, 5307, or 5310. As part of the determination letter submission, the cover letter must identify the amendment as a corrective amendment under SCP. In addition, the Plan Sponsor must include in the cover letter to the application: (1) a statement that neither the plan nor the Plan Sponsor has been a party to an abusive tax avoidance transaction (as defined in section 4.13(2) of this revenue procedure); or (2) a brief identification of any abusive tax avoidance transaction to which the plan or the Plan Sponsor has been a party.

(3) Determination Letter application not required or permitted. (a) Failure to adopt timely good faith amendments, interim amendments, or amendments required to implement optional law changes before the expiration of the plan's remedial amendment period as determined under Rev. Proc. 2007-44. (i) In general. The provisions of this section 6.05(3)(a) are applicable with respect to a failure to adopt timely good faith, interim, or optional law change amendments that is corrected (i.e., corrective amendments are adopted by the employer) prior to the plan's first on-cycle year following the date by which any such amendment should have been adopted pursuant to section 5.05 of Rev. Proc. 2007-44. If a Plan Sponsor submits a failure under VCP or corrects a failure under Audit CAP to adopt timely good faith amendments, interim amendments, or timely amendments to the plan to implement optional law changes, then a determination letter application is not required and may not be submitted with the VCP submission or as part of the correction of the failure under Audit CAP.

(ii) Definitions. For purposes of this revenue procedure:

(1) "Good faith amendments" include the EGTRRA good faith amendments described in Notice 2001-42, 2001-2 C.B. 70, the amendment required for the plan to comply with the final regulations under § 401(a)(9) of the Code (see Rev. Proc. 2002-29, 2002-1 C.B. 1176, as modified by Rev. Proc. 2003-10, 2003-1 C.B. 259), the amendment updating the mortality table to reflect the guidance in Rev. Rul. 2001-62, 2001-2 C.B. 632, and the amendment updating the definition of compensation, for purposes of § 415(c)(3), to include "deemed § 125 compensation" pursuant to Rev. Rul. 2002-27, 2002-1 C.B. 925,

(2) "Interim amendments" are interim amendments within the meaning of section 5.01 of Rev. Proc. 2007-44, and

(3) "Optional law changes" refer to changes in statutes, regulations, or other published guidance that are not required to preserve the plan's qualified status, but are implemented at the Plan Sponsor's discretion, other than amendments that are integral to plan provisions that are disqualifying provisions under section 5.01(1) of Rev. Proc. 2007-44.

(iii) Example. An example of an optional law change is the expansion of permitted safe harbor hardship events as provided in section 826 of the Pension Protection Act, 2006, P.L. 109-280 ("PPA '06") and Notice 2007-7 to permit a plan to treat a participant's beneficiary under the plan the same as the participant's spouse or dependent in determining whether the participant has incurred a hardship or unforeseeable financial emergency. The Plan Sponsor may amend the plan to permit hardship distributions pursuant to any or all of the events provided for in the previous sentence. However, the plan amendment is not required to preserve the plan's qualified status.

(b) Issuance of a compliance statement. The issuance of a compliance statement (under VCP) or closing agreement (under Audit CAP) with respect to failures described in paragraph 6.05(3)(a) results in the corrective amendments being treated as if they had been adopted timely for the purpose of determining the availability of the extended remedial amendment period described in section 5.03 of Rev. Proc. 2007-44. However, the issuance of such a compliance statement or closing agreement does not constitute a determination as to whether the form of the plan amendment complies with the change in qualification requirement.

(c) Operational Failures corrected through plan amendment under VCP and Audit CAP during an off-cycle year. If, during an off-cycle year, a Plan Sponsor submits an Operational Failure under VCP or corrects such a failure under Audit CAP, then a determination letter application is not required and may not be submitted with the VCP submission or as part of the correction of the failure under Audit CAP. If the plan amendment is accepted as a proper correction for an Operational Failure, the compliance statement under VCP or closing agreement issued under Audit CAP constitutes a determination on the effect of the plan amendment on the qualification of the plan. The reliance provided by a compliance statement or closing agreement is limited to the specific failures and years specified and does not provide reliance for any other failure or year. Except as provided in section 6.05(1), with respect to correction of an Operational Failure through plan amendment, the compliance statement issued under VCP or closing agreement issued under Audit CAP is subject to the condition that the amendment be submitted as part of a determination letter submission during the plan's next on-cycle year, or, if earlier, in connection with the plan's termination, and that a favorable determination letter be issued with respect to the plan. The determination letter application should be mailed to the address listed in the instructions of the applicable Form 5300, 5307 or 5310 and should include a copy of the related compliance statement or closing agreement. A Plan Sponsor that corrects an Operational Failure through a plan amendment under Audit CAP during an off-cycle year should also include a copy of the closing agreement when submitting a determination letter application during the plan's next on-cycle year, or if earlier, in connection with the plan's termination.

(d) Failure to adopt amendments required under the terms of a favorable determination letter. If a Plan Sponsor failed to adopt an amendment (upon which the favorable letter was conditioned) within the applicable remedial amendment period specified in the determination letter and the Plan Sponsor submits such failure under VCP, then a determination letter application is not required and should not be submitted with the VCP submission.

(4) Determination letter applications optional under EPCRS. A Plan Sponsor may submit a determination letter application with respect to a correction through plan amendment prior to the plan's on-cycle year if the plan would be given the same priority as an on-cycle filing pursuant to sections 14.02 and 14.03 of Rev. Proc. 2007-44, (relating to certain new plans, terminating plans, and off-cycle applications submitted in accordance with published guidance issued by the Service specifying such submission, and in the case of urgent business need). Determination letter requests submitted pursuant to this section 6.05(4) must contain a written justification as to the eligibility of the plan under section 14.02 or 14.03 of Rev. Proc. 2007-44 and this section 6.05(4). In the case of urgent business need, the Service will consider such requests based on the facts and circumstances.

(5) Corrective amendments to pre-approved plans. (a) VCP and Audit CAP. Generally, under VCP or Audit CAP, a Plan Sponsor that is a pre-approved plan adopter is able to amend its plan to correct a Qualification Failure (provided the amendment satisfies the requirements of the Code). In some cases, the corrective amendment is not provided for among plan provision options that were pre-approved when the opinion or advisory letter was issued with respect to the plan. As a result, adopting such a corrective amendment would cause the Plan Sponsor to lose reliance on the plan's opinion or advisory letter, except in the limited circumstances provided in this section 6.05(5).

(b) Pre-approved plans. In the case of a pre-approved plan (that is, a master and prototype or volume submitter plan), the adoption of a plan provision not provided for in the adoption agreement which is required to correct a failure under VCP or Audit CAP will not cause the Plan Sponsor to lose its reliance on the plan's opinion or advisory letter, provided that: (i) the corrective amendment would otherwise be permitted under the rules for pre-approved plans and (ii) no other modification has been made to the plan that would cause the plan to lose its reliance on the opinion or advisory letter. If these conditions are satisfied, the Plan Sponsor will be allowed to continue to rely on the plan's opinion or advisory letter. In addition, the adoption of the corrective amendment will not cause the plan to lose its eligibility to remain within the six-year remedial amendment cycle provided for in Rev. Proc. 2007-44 on a continuing basis until the expiration of the next six-year remedial amendment cycle described in section 18.01 of Rev. Proc. 2007-44.

(6) Internal Revenue Service discretion. Notwithstanding any other provision of section 6.05 of this revenue procedure, the Service reserves the right to require the submission of a determination letter application with respect to any amendment proposed or adopted to correct any Qualification Failure under VCP or Audit CAP.

.06 Special rules relating to Excess Amounts. (1) Treatment of Excess Amounts. Except as otherwise provided in section 6.02(5)(c) with respect to recovery of small Overpayments, a distribution of an Excess Amount is not eligible for the favorable tax treatment accorded to distributions from Qualified Plans or 403(b) Plans (such as eligibility for tax-free rollover). Thus, for example, if such a distribution was contributed to an IRA, the contribution is not a valid rollover contribution for purposes of determining the amount of excess contributions (within the meaning of § 4973) to the individual's IRA. A distribution of an Excess Amount is generally treated in the manner described in section 3 of Rev. Proc. 92-93, 1992-2 C.B. 505 (relating to the corrective disbursement of elective deferrals). The distribution must be reported on Form 1099-R for the year of distribution with respect to each participant or beneficiary receiving such a distribution. Except as otherwise provided in section 6.02(5)(c), where an Excess Amount has been or is being distributed, the Plan Sponsor must notify the recipient that (a) an Excess Amount has been or will be distributed and (b) an Excess Amount is not eligible for favorable tax treatment accorded to distributions from an eligible retirement plan under § 402(c)(8)(B) (and, specifically, is not eligible for rollover).

(2) Correction of Excess Allocations. In general, an Excess Allocation is corrected in accordance with the Reduction of Account Balance Correction Method set forth in this paragraph. Under this method, the account balance of an employee who received an Excess Allocation is reduced by the Excess Allocation (adjusted for Earnings). If the Excess Allocation would have been allocated to other employees in the year of the failure had the failure not occurred, then that amount (adjusted for Earnings) is reallocated to those employees in accordance with the plan's allocation formula. If the improperly allocated amount would not have been allocated to other employees absent the failure, that amount (adjusted for Earnings) is placed in a separate account that is not allocated on behalf of any participant or beneficiary (an unallocated account) established for the purpose of holding Excess Allocations, adjusted for Earnings, to be used to reduce employer contributions (other than elective deferrals) in the current year or succeeding year. While such amounts remain in the unallocated account, the employer is not permitted to make contributions to the plan other than elective deferrals. Excess Allocations that are attributable to elective deferrals or after-tax employee contributions (adjusted for Earnings) must be distributed to the participant. For qualification purposes, an Excess Allocation that is corrected pursuant to this paragraph is disregarded for purposes of §§ 402(g) and 415, the actual deferral percentage test of § 401(k)(3), and the actual contribution percentage test of § 401(m)(2). If an Excess Allocation resulting from a violation of § 415 consists of annual additions attributable to both employer contributions and elective deferrals or after-tax employee contributions, then the correction of the Excess Allocation is completed by first distributing the unmatched employee's after-tax contributions (adjusted for Earnings) and then the unmatched employee's elective deferrals (adjusted for Earnings). If any excess remains, and is attributable to either elective deferrals or after-tax employee contributions that are matched, the excess is apportioned first to after-tax employee contributions with the associated matching employer contributions and then to elective deferrals with the associated matching employer contributions. Any matching contribution or nonelective employer contribution (adjusted for Earnings) which constitutes an Excess Allocation is then forfeited and placed in an unallocated account established for the purpose of holding Excess Allocations to be used to reduce employer contributions in the current year and succeeding year. Such unallocated account is adjusted for Earnings. While such amounts remain in the unallocated account, the employer is not permitted to make contributions (other than elective deferrals) to the plan.

(3) Correction of Overpayment (defined benefit plans). An Overpayment from a defined benefit plan is corrected in accordance with rules similar to the Return of Overpayment and Adjustment of Future Payments correction methods described in section 2.04(1) of Appendix B.

(4) Correction of Overpayment (defined contribution plans and 403(b) Plans). (a) In general. An Overpayment from a defined contribution plan or 403(b) Plan is corrected in accordance with the Return of Overpayment method set forth in this paragraph. Under this method, the employer takes reasonable steps to have the Overpayment, adjusted for Earnings at the plan's earnings rate from the date of the distribution to the date of the repayment, returned by the participant or beneficiary to the plan.

(b) Make-whole contribution. To the extent the amount of an Overpayment adjusted for Earnings at the plan's earnings rate is not repaid to the plan, the employer or another person must contribute the difference to the plan. The preceding sentence does not apply when the failure arose solely because a payment was made from the plan to a participant or beneficiary in the absence of a distributable event (but was otherwise determined in accordance with the terms of the plan (e.g. an impermissible in-service distribution)).

(c) Unallocated account. Except as provided in section 6.06(4)(d), a corrected Overpayment, adjusted for Earnings at the plan's earnings rate to the date of the repayment, is to be placed in an unallocated account, as described in section 6.06(2), to be used to reduce employer contributions (other than elective deferrals) in the current year and succeeding year(s) (or, if the amount would have been allocated to other eligible employees who were in the plan for the year of the failure if the failure had not occurred, then that amount is reallocated to the other eligible employees in accordance with the plan's allocation formula).

(d) Repayment by the participant or beneficiary. To the extent an Overpayment was solely considered a premature distribution but was otherwise determined in accordance with the terms of the plan, any amount returned to the plan by the participant or beneficiary is to be allocated to his or her account.

(e) Notification of employee. Except as provided in section 6.02(5)(c) with respect to the recovery of small overpayments, the employer must notify the employee that the Overpayment was not eligible for favorable tax treatment accorded to distributions from an eligible retirement plan under § 402(c)(8)(B) (and, specifically, was not eligible for tax-free rollover).

.07 Rules relating to reporting plan loan failures. (1) General rules for loans. Unless correction is made in accordance with this section 6.07(2) or (3), a deemed distribution under § 72(p)(1) in connection with a failure relating to a loan to a participant made from a plan must be reported on Form 1099-R with respect to the affected participant and any applicable income tax withholding amount that was required to be paid in connection with the failure (see § 1.72(p)-1, Q&A-15) must be paid by the employer. As part of VCP and Audit CAP, the deemed distribution may be reported on Form 1099-R with respect to the affected participant for the year of correction (instead of the year of the failure). The relief of reporting the participant's loan as a deemed distribution on Form 1099-R in the year of correction, as described in the preceding sentence, applies only if the Plan Sponsor specifically requests such relief.

(2) Special rules for loans. (a) In general. The correction methods set forth in section 6.07(2)(b) and (c) and section 6.07(3) are available for plan loans that do not comply with one or more requirements of § 72(p)(2) and are corrected through VCP or Audit CAP. The correction methods described in section 6.07(2)(b) and (c) and section 6.07(3) are not available if the maximum period for repayment of the loan pursuant to § 72(p)(2)(B) has expired. The Service reserves the right to limit the use of the correction methods listed in section 6.07(2)(b) and (c) and section 6.07(3) to situations that it considers appropriate; for example, where the loan failure is caused by employer action. A deemed distribution corrected under section 6.07(2)(b) or (c) or under section 6.07(3) is not required to be reported on Form 1099-R and repayments made by correction under sections 6.07(2) and 6.07(3) do not result in the affected participant having additional basis in the plan for purposes of determining the tax treatment of subsequent distributions from the plan to the affected participant. The relief from reporting the participant's loan as a deemed distribution on Form 1099-R, as described in the preceding sentence, applies only if the Plan Sponsor specifically requests such relief and provides an explanation supporting the request.

(b) Loans in excess of § 72(p)(2)(A). A failure to comply with plan provisions requiring that loans comply with § 72(p)(2)(A) may be corrected by a corrective repayment to the plan based on the excess of the loan amount over the maximum loan amount under § 72(p)(2)(A). In the event that loan repayments were made in accordance with the amortization schedule for the loan before correction, such prior repayments may be applied (i) solely to reduce the portion of the loan that did not exceed the maximum loan amount under § 72(p)(2)(A) (so that the corrective repayment would equal the original loan excess plus interest thereon), (ii) to reduce the loan excess to the extent of the interest thereon, with the remainder of the repayments applied to reduce the portion of the loan that did not exceed the maximum loan amount under § 72(p)(2)(A) (so that the corrective repayment would equal the original loan excess), or (iii) pro rata against the loan excess and the maximum loan amount under § 72(p)(2)(A) (so that the corrective repayment would equal the outstanding balance remaining on the original loan excess on the date that corrective repayment is made). After the corrective payment is made, the loan may be reformed to amortize the remaining principal balance as of the date of repayment over the remaining period of the original loan. This is permissible as long as the recalculated payments over the remaining period would not cause the loan to violate the maximum duration permitted under § 72(p)(2)(B). The maximum duration is determined from the date the original loan was made. In addition, the amortization payments determined for the remaining period must comply with the level amortization requirements of § 72(p)(2)(C).

(c) Loan terms that do not satisfy § 72(p)(2)(B) or (C). For a failure of loan repayment terms to provide for a repayment schedule that complies with § 72(p)(2)(B) or (C), the failure may be corrected by a reamortization of the loan balance in accordance with § 72(p)(2)(C) over the remaining period that is the maximum period that complies with § 72(p)(2)(B) measured from the original date of the loan.

(d) No requirement for plan provisions. This section 6.07 applies even if the plan does not require loans to satisfy the requirements of § 72(p)(2). However, to correct the ERISA fiduciary violations associated with the failures described in section 6.07(2)(b) and (c) and section 6.07(3) under the Department of Labor's Voluntary Fiduciary Correction Program, the plan must contain plan provisions requiring that loans comply with § 72(p)(2)(A), (B), and (C).

(3) Defaulted loans. A failure to repay the loan in accordance with the loan terms where the terms satisfy § 72(p)(2) may be corrected by (i) a single-sum repayment equal to the additional repayments that the affected participant would have made to the plan if there had been no failure to repay the plan, plus interest accrued on the missed repayments, (ii) reamortizing the outstanding balance of the loan, including accrued interest, over the remaining payment schedule of the original term of the loan or the period remaining had the loan been amortized over the maximum period that complies with § 72(p)(2)(B), measured from the original date of the loan, or (iii) any combination of (i) or (ii).

.08 Correction under statute or regulations. Generally, none of the correction programs are available to correct failures that can be corrected under the Code and related regulations. For example, as a general rule, a Plan Document Failure that is a disqualifying provision for which the remedial amendment period under § 401(b) has not expired can be corrected under provisions of the Code through retroactive remedial amendment.

.09 Matters subject to excise or other taxes. (1) General rule. Except as provided in this revenue procedure, the correction programs are not available for events for which the Code provides tax consequences other than plan disqualification (such as the imposition of an excise tax or additional income tax). For example, funding deficiencies (failures to make the required contributions to a plan subject to § 412), prohibited transactions, and failures to file the Form 5500 series cannot be corrected under this revenue procedure.

(2) Section 4974. As part of VCP and Audit CAP, if a failure involves the failure to satisfy the minimum required distribution requirements of § 401(a)(9), in appropriate cases, the Service will waive the excise tax under § 4974 applicable to plan participants or beneficiaries. The waiver will be included in the compliance statement or in the closing agreement in the case of Audit CAP. Under VCP, the Plan Sponsor, as part of the submission, must request the waiver and, in cases where the participant subject to the excise tax is either an owner-employee as defined in § 401(c)(3) or a 10% owner of a corporation, the Plan Sponsor must also provide an explanation supporting the request. See section 12.02(2) relating to the applicable compliance fee for certain § 401(a)(9) failures. Under Audit CAP, the Plan Sponsor must make a specific request for waiver of the excise tax under § 4974. The Plan Sponsor should also provide an explanation supporting the request for a waiver. Upon reviewing the request, the reasons for the failure, and other facts or circumstances of the case under examination, the Service will determine whether it is appropriate to approve the waiver of the excise tax as part of the closing agreement negotiated under Audit CAP.

(3) Section 4972. As part of VCP, if the failure involves a correction that requires the Plan Sponsor to make a plan contribution that is not deductible, in appropriate cases, the Service will not pursue the excise tax under § 4972 on such nondeductible contributions. The Plan Sponsor, as part of the submission must request the relief and provide an explanation supporting the request.

(4) Section 4979. As part of VCP, if a failure results in excess contributions as defined in § 4979(c) or excess aggregate contributions as defined in § 4979(d) under a plan, in appropriate cases, the Service will not pursue the excise tax under § 4979, e.g., where correction is made for any case in which the ADP test was timely performed but, due to reliance on inaccurate data, resulted in an insufficient amount of excess elective deferrals having been distributed to HCEs. The Plan Sponsor, as part of the submission, must request the relief and provide an explanation supporting the request.

(5) Section 4973. Subject to section 6.03(4), as part of VCP, in appropriate cases, the Service will not pursue the excise tax under § 4973 relating to excess contributions made to a 403(b) Plan or IRA under any of the following circumstances:

(a) As part of the proposed correction for Overpayments, the participant or beneficiary ("recipient") removes the Overpayment (adjusted for Earnings) from the recipient's 403(b) Plan or IRA and returns that amount to the plan.

(b) As part of the proposed correction for Excess Amounts, the recipient removes the Excess Amount (adjusted for Earnings) from the recipient's 403(b) Plan or IRA and reports that amount (reduced by any applicable after-tax employee contribution) as a taxable distribution for the year in which the Excess Amount (adjusted for Earnings) is removed from the recipient's IRA. The amount removed is generally taxed in a manner that is similar to the manner in which the corrective disbursement of elective deferrals is taxed, as described in section 3 of Rev. Proc. 92-93.

(c) The Plan Sponsor, as part of the submission, must request relief from the § 4973 excise tax and provide an explanation supporting the request.

(6) Section 72(t). As part of VCP, in appropriate cases, the Service will not pursue the 10% additional income tax under § 72(t) (or will pursue only a portion thereof) if, as part of the proposed correction of an Overpayment that occurred solely because an employee received a distribution from his or her vested account balance that was not a distributable event, the participant or beneficiary ("recipient") returns the improperly distributed amount, adjusted for Earnings, to the plan. If the improperly distributed amount was rolled over to the recipient's IRA, then correction will include removing the amount improperly distributed and rolled over (adjusted for Earnings) from the recipient's IRA and returning that amount to the plan. In appropriate cases, as a condition for not pursuing all or a portion of the additional tax, the Service may require the Plan Sponsor to pay an additional fee under VCP not in excess of the 10% additional income tax under § 72(t). The Plan Sponsor, as part of the submission, must request the relief and provide an explanation supporting the request.

.10 Correction for 403(b) Plans. (1) Correction for 403(b) Plans generally. Except as provided in sections 6.03(2) and 6.10(2), the correction for a 403(b) Plan is expected to be the same as the correction required for a Qualified Plan with the same Failure (i.e., Plan Document Failure, Operational Failure, Demographic Failure, and Employer Eligibility Failure).

(2) Special correction principles. In general, a 403(b) Failure can be corrected by treating a contract as a § 403(c) annuity contract (or, if applicable, as an amount to which § 61, 83, or 402(b) applies), such as for purposes of correcting an Employer Eligibility Failure, a failure to provide for full vesting (including a failure to maintain a separate account), or an exchange made to a vendor which is not part of the plan (and for which there is no information sharing agreement). In addition, for purposes of this revenue procedure, pending additional guidance, a 403(b) Plan generally will be treated as having a Favorable Letter if either (a) the employer is an eligible employer and, on or before December 31, 2009 (or the date a 403(b) Plan is established, if later), the employer has adopted a written 403(b) Plan that is intended to satisfy § 403(b) (including the regulations thereunder) effective as of January 1, 2009 (or the first day of the plan year in which a 403(b) Plan is established, if later), or (b) the employer has failed to adopt a written 403(b) Plan timely and corrects the failure in accordance with section 6.10(3) below. In addition, for purposes of section 4.04 (requiring that the Plan Sponsor or administrator of the plan have established practices and procedures reasonably designed to promote and facilitate overall compliance with applicable Code requirements in order to be eligible for SCP to be available to correct Operational Failures), the requirement to have established practices and procedures only applies for failures during periods after December 31, 2009.

(3) Correction for failure to adopt a written 403(b) Plan timely. A failure to adopt a written 403(b) Plan timely in accordance with the final regulations under § 403(b) and Notice 2009-3 may be corrected under VCP and Audit CAP. The issuance of a compliance statement or closing agreement for the failure to adopt a written 403(b) Plan timely will result in the written 403(b) Plan being treated as if it had been adopted timely for the purpose of making available the extended remedial amendment period set forth in Announcement 2009-89. However, the issuance of a compliance statement or closing agreement does not constitute a determination as to whether the written plan, as drafted, complies with the applicable requirements of § 403(b) of the Code and the final 403(b) regulations.

.11 Correction for SEPs and SIMPLE IRA Plans. (1) Correction for SEPs and SIMPLE IRA Plans generally. Generally, the correction for a SEP or a SIMPLE IRA Plan is expected to be similar to the correction required for a Qualified Plan with a similar Qualification Failure (i.e., Plan Document Failure, Operational Failure, Demographic Failure, and Employer Eligibility Failure).

(2) Special correction for SEPs and SIMPLE IRA Plans. In any case in which correction under section 6.11(1) is not feasible for a SEP or SIMPLE IRA Plan or in any other case determined by the Service in its discretion (including failures relating to § 402(g), 415, or 401(a)(17), failures relating to deferral percentages, discontinuance of contributions to a SARSEP or SIMPLE IRA Plan, and retention of Excess Amounts for cases in which there has been no violation of a statutory limitation with respect to a SEP or SIMPLE IRA Plan), the Service may provide for a different correction. See section 12.06(2) for a special fee that may apply in such a case.

(3) Correction of failure to satisfy deferral percentage test. If the failure involves a violation of the deferral percentage test under § 408(k)(6)(A)(iii) applicable to a SARSEP, the failure may be corrected in either of the following ways:

(a) The Plan Sponsor may make contributions that are 100% vested to all eligible nonhighly compensated employees (to the extent permitted by § 415) necessary to raise the deferral percentage to an amount sufficient to pass the test. This amount may be calculated as the same percentage of compensation (regardless of the terms of the SEP).

(b) The Plan Sponsor may effect distribution of excess contributions, adjusted for Earnings through the date of correction, to highly compensated employees to correct the failure. The Plan Sponsor must also contribute to the SEP an amount equal to the total amount distributed. This amount must be allocated to (i) current employees who were nonhighly compensated employees in the year of the failure, (ii) current nonhighly compensated employees who were nonhighly compensated employees in the year of the failure, or (iii) employees (both current and former) who were nonhighly compensated employees in the year of the failure.

(4) Treatment of undercontributions to a SEP or a SIMPLE IRA Plan. (a) Make-up contributions; Earnings. The Plan Sponsor should correct undercontributions to a SEP or a SIMPLE IRA Plan by contributing make-up amounts that are fully vested, adjusted for Earnings from the date of the failure to the date of correction.

(b) Earnings adjustment methods. Insofar as SEP and SIMPLE IRA Plan assets are held in IRAs, there is no earnings rate under the SEP or SIMPLE IRA Plan as a whole. If it is not feasible to make a reasonable estimate of what the actual investment results would have been, a reasonable interest rate may be used.

(5) Treatment of Excess Amounts under a SEP or a SIMPLE IRA Plan. (a) Distribution of Excess Amounts. For purposes of this section 6.11, an Excess Amount is an amount contributed on behalf of an employee that is in excess of an employee's benefit under the plan, or an elective deferral in excess of the limitations of § 402(g) or 408(k)(6)(A)(iii). If an Excess Amount is attributable to elective deferrals, the Plan Sponsor may effect distribution of the Excess Amount, adjusted for Earnings through the date of correction, to the affected participant. The amount distributed to the affected participant is includible in gross income in the year of distribution. The distribution is reported on Form 1099-R for the year of distribution with respect to each participant receiving the distribution. In addition, the Plan Sponsor must inform affected participants that the distribution of an Excess Amount is not eligible for favorable tax treatment accorded to distributions from a SEP or a SIMPLE IRA Plan (and, specifically, is not eligible for tax-free rollover). If the Excess Amount is attributable to employer contributions, the Plan Sponsor may effect distribution of the employer Excess Amount, adjusted for Earnings through the date of correction, to the Plan Sponsor. The amount distributed to the Plan Sponsor is not includible in the gross income of the affected participant. The Plan Sponsor is not entitled to a deduction for such employer Excess Amount. The distribution is reported on Form 1099-R issued to the participant indicating the taxable amount as zero.

(b) Retention of Excess Amounts. If an Excess Amount is retained in the SEP or SIMPLE IRA Plan under this section 6.11(5), a special fee, in addition to the VCP submission fee, will apply. See section 12.06(2) for the special fee. The Plan Sponsor is not entitled to a deduction for an Excess Amount retained in the SEP or SIMPLE IRA Plan. In the case of an Excess Amount retained in a SEP that is attributable to a § 415 failure, the Excess Amount, adjusted for Earnings through the date of correction, must reduce an affected participant's applicable § 415 limit for the year following the year of correction (or for the year of correction if the Plan Sponsor so chooses), and subsequent years, until the excess is eliminated.

(c) De minimis Excess Amounts. If the total Excess Amount in a SEP or SIMPLE IRA Plan, whether attributable to elective deferrals or employer contributions, is $100 or less, the Plan Sponsor is not required to distribute the Excess Amount and the special fee described in section 12.06(2) does not apply.

.12 Confidentiality and disclosure. Because each correction program relates directly to the enforcement of Code requirements, the information received or generated by the Service under the program is subject to the confidentiality requirements of § 6103 and is not a written determination within the meaning of § 6110.

.13 No effect on other law. Correction under these programs has no effect on the rights of any party under any other law, including Title I of ERISA. The Department of Labor maintains a Voluntary Fiduciary Correction Program under which certain ERISA fiduciary violations may be corrected. The Department of Labor also maintains a Delinquent Filer Voluntary Compliance Program under which certain failures to comply with the annual reporting requirements (Form 5500 series) under ERISA may be corrected.

PART IV. SELF-CORRECTION (SCP)

SECTION 7. IN GENERAL

The requirements of this section 7 are satisfied with respect to an Operational Failure if the Plan Sponsor of a Qualified Plan, a 403(b) Plan, a SEP, or a SIMPLE IRA Plan satisfies the requirements of section 8 (relating to insignificant Operational Failures) or, in the case of a Qualified Plan or a 403(b) Plan, section 9 (relating to significant Operational Failures).

SECTION 8. SELF-CORRECTION OF INSIGNIFICANT OPERATIONAL FAILURES

.01 Requirements. The requirements of this section 8 are satisfied with respect to an Operational Failure if the Operational Failure is corrected and, given all the facts and circumstances, the Operational Failure is insignificant. This section 8 is available for correcting an insignificant Operational Failure even if the plan or Plan Sponsor is Under Examination and even if the Operational Failure is discovered on examination.

.02 Factors. The factors to be considered in determining whether an Operational Failure under a plan is insignificant include, but are not limited to: (1) whether other failures occurred during the period being examined (for this purpose, a failure is not considered to have occurred more than once merely because more than one participant is affected by the failure); (2) the percentage of plan assets and contributions involved in the failure; (3) the number of years the failure occurred; (4) the number of participants affected relative to the total number of participants in the plan; (5) the number of participants affected as a result of the failure relative to the number of participants who could have been affected by the failure; (6) whether correction was made within a reasonable time after discovery of the failure; and (7) the reason for the failure (for example, data errors such as errors in the transcription of data, the transposition of numbers, or minor arithmetic errors). No single factor is determinative. Additionally, factors (2), (4), and (5) should not be interpreted to exclude small businesses.

.03 Multiple failures. In the case of a plan with more than one Operational Failure in a single year, or Operational Failures that occur in more than one year, the Operational Failures are eligible for correction under this section 8 only if all of the Operational Failures are insignificant in the aggregate. Operational Failures that have been corrected under SCP in section 9 and VCP in sections 10 and 11 are not taken into account for purposes of determining if Operational Failures are insignificant in the aggregate.

.04 Examples. The following examples illustrate the application of this section 8. It is assumed, in each example, that the eligibility requirements of section 4 relating to SCP (for example, the requirements of section 4.04 relating to established practices and procedures) have been satisfied and that no Operational Failures occurred other than the Operational Failures identified below.

Example 1: In 1991, Employer X established Plan A, a profit-sharing plan that satisfies the requirements of § 401(a) in form. In 2005, the benefits of 50 of the 250 participants in Plan A were limited by § 415(c). However, when the Service examined Plan A in 2008, it discovered that, during the 2005 limitation year, the annual additions allocated to the accounts of 3 of these employees exceeded the maximum limitations under § 415(c). Employer X contributed $3,500,000 to the plan for the plan year. The amount of the excesses totaled $4,550. Under these facts, because the number of participants affected by the failure relative to the total number of participants who could have been affected by the failure, and the monetary amount of the failure relative to the total employer contribution to the plan for the 2005 plan year, are insignificant, the § 415(c) failure in Plan A that occurred in 2005 would be eligible for correction under this section 8.

Example 2: The facts are the same as in Example 1, except that the failure to satisfy § 415 occurred during each of the 2005 and 2007 limitation years. In addition, the three participants affected by the § 415 failure were not identical each year. The fact that the § 415 failures occurred during more than one limitation year does not cause the failures to be significant; accordingly, the failures are still eligible for correction under this section 8.

Example 3: The facts are the same as in Example 1, except that the annual additions of 18 of the 50 employees whose benefits were limited by § 415(c) nevertheless exceeded the maximum limitations under § 415(c) during the 2005 limitation year, and the amount of the excesses ranged from $1,000 to $9,000, and totaled $150,000. Under these facts, taking into account the number of participants affected by the failure relative to the total number of participants who could have been affected by the failure for the 2005 limitation year (and the monetary amount of the failure relative to the total employer contribution), the failure is significant. Accordingly, the § 415(c) failure in Plan A that occurred in 2005 is ineligible for correction under this section 8 as an insignificant failure.

Example 4: Employer J maintains Plan C, a money purchase pension plan established in 1992. The plan document satisfies the requirements of § 401(a). The formula under the plan provides for an employer contribution equal to 10% of compensation, as defined in the plan. During its examination of the plan for the 2005 plan year, the Service discovered that the employee responsible for entering data into the employer's computer made minor arithmetic errors in transcribing the compensation data with respect to 6 of the plan's 40 participants, resulting in excess allocations to those 6 participants' accounts. Under these facts, the number of participants affected by the failure relative to the number of participants that could have been affected is insignificant, and the failure is due to minor data errors. Thus, the failure occurring in 2005 is insignificant and therefore eligible for correction under this section 8.

Example 5: Public School maintains for its 200 employees a salary reduction 403(b) Plan ("Plan B") that is intended to satisfy the requirements of § 403(b). The business manager has primary responsibility for administering Plan B, in addition to other administrative functions within Public School. During the 2005 plan year, a former employee should have received an additional minimum required distribution of $278 under § 403(b)(10). Another participant received an impermissible hardship withdrawal of $2,500. Another participant made elective deferrals of which $1,000 was in excess of the § 402(g) limit. Under these facts, even though multiple failures occurred in a single plan year, the failures are eligible for correction under this section 8 because in the aggregate the failures are insignificant.

SECTION 9. SELF-CORRECTION OF SIGNIFICANT OPERATIONAL FAILURES

.01 Requirements. The requirements of this section 9 are satisfied with respect to an Operational Failure (even if significant) if the Operational Failure is corrected and the correction is either completed or substantially completed (in accordance with section 9.04) by the last day of the correction period described in section 9.02.

.02 Correction period. (1) End of correction period. The last day of the correction period for an Operational Failure is the last day of the second plan year following the plan year for which the failure occurred. However, in the case of a failure to satisfy the requirements of § 401(k)(3), 401(m)(2), or, for plan years beginning on or before December 31, 2001, the multiple use test of § 401(m)(9), the correction period does not end until the last day of the second plan year following the plan year that includes the last day of the additional period for correction permitted under § 401(k)(8) or 401(m)(6). If a 403(b) Plan does not have a designated plan year, the plan year is deemed to be the calendar year for purposes of this section 9.02. See section 6.02(5)(d)(ii) of this revenue procedure for a limited extension of the correction period set forth in this paragraph for Plan Sponsors taking action to locate lost participants.

(2) Extension of correction period for Transferred Assets. In the case of an Operational Failure that relates only to Transferred Assets, or to a plan assumed in connection with a corporate merger, acquisition, or other similar employer transaction, the correction period does not end until the last day of the first plan year that begins after the corporate merger, acquisition, or other similar employer transaction between the Plan Sponsor and the sponsor of the transferor plan or the prior sponsor of an assumed plan.

(3) Effect of examination. The correction period for an Operational Failure that occurs for any plan year ends, in any event, on the first date the plan or Plan Sponsor is Under Examination for that plan year (determined without regard to the second sentence of section 9.02). (But see section 9.04 for special rules permitting completion of correction after the end of the correction period.)

.03 Correction by plan amendment. In order to complete correction by plan amendment (as permitted under section 4.05), the amendment should be identified as an amendment that was adopted pursuant to SCP and submitted as a part of the next determination letter application. The appropriate determination letter application must be submitted during the plan's next on-cycle year (as determined under Rev. Proc. 2007-44), or, if earlier, in connection with the plan's termination. The application must conclude with the issuance of a favorable determination letter for the plan.

.04 Substantial completion of correction. Correction of an Operational Failure is substantially completed by the last day of the correction period only if the requirements of either paragraph (1) or (2) are satisfied.

(1) The requirements of this paragraph (1) are satisfied if:

(a) during the correction period, the Plan Sponsor is reasonably prompt in identifying the Operational Failure, formulating a correction method, and initiating correction in a manner that demonstrates a commitment to completing correction of the Operational Failure as expeditiously as practicable; and

(b) within 120 days after the last day of the correction period, the Plan Sponsor completes correction of the Operational Failure.

(2) The requirements of this paragraph (2) are satisfied if:

(a) during the correction period, correction is completed with respect to 65% of all participants affected by the Operational Failure; and

(b) thereafter, the Plan Sponsor completes correction of the Operational Failure with respect to the remaining affected participants in a diligent manner.

.05 Examples. The following examples illustrate the application of this section 9. It is assumed, in each example, that the eligibility requirements of section 4 relating to SCP have been met.

Example 1: Employer Z established a qualified defined contribution plan in 2003 and received a favorable determination letter. During 2007, while doing a self-audit of the operation of the plan for the 2006 plan year, the plan administrator discovered that, despite the practices and procedures established by Employer Z with respect to the plan, several employees eligible to participate in the plan were excluded from participation. The administrator also found that for 2006 Operational Failures occurred because the elective deferrals of additional employees exceeded the § 402(g) limit and Employer Z failed to make the required top-heavy minimum contribution. In addition, during the review of the administration for the 2006 year, it was found that the plan administrator intended to implement correction for the failure to satisfy the ADP test (as described in § 401(k)(3)) for the 2005 plan year. During the 2008 plan year, the Plan Sponsor made QNECs on behalf of the excluded employees, distributed the excess deferrals to the affected participants, and made a top-heavy minimum contribution to all participants entitled to that contribution for the 2006 plan year. Each corrective contribution and distribution was credited with Earnings at a rate appropriate for the plan from the date the corrective contribution or distribution should have been made to the date of correction. The failed ADP test for 2005 was corrected by making corrective contributions, adjusted for Earnings, on behalf of nonhighly compensated employees using the method described in Appendix A, section .03 of this revenue procedure. Under these facts, the Plan Sponsor has corrected the ADP test failure for the 2005 plan year and the Operational Failures for the 2006 plan year within the correction period and thus satisfied the requirements of this section 9.

Example 2: Employer A established a qualified defined contribution plan, Plan A, in 1993 and has received a favorable determination letter for the applicable law changes. In April 2007, Employer A purchased all of the stock of Employer B, a wholly-owned subsidiary of Employer C. Employees of Employer B participated in Plan C, a qualified defined contribution plan sponsored by Employer C. Following Employer A's review of Plan C, Employer A and Employer C agreed that Plan A would accept a transfer of plan assets from Plan C attributable to the account balances of the employees of Employer B who had participated in Plan C. As part of this agreement, Employer C represented to Employer A that Plan C was tax qualified. Employers A and C also agreed that such transfer would be in accordance with § 414(l) and § 1.414(l)-1 and addressed issues related to costs associated with the transfer. Following the transaction, the employees of Employer B began participation in Plan A. Effective July 1, 2007, Plan A accepted the transfer of plan assets from Plan C. After the transfer, Employer A determined that all the participants in one division of Employer B had been incorrectly excluded from allocation of the profit sharing contributions for the 2002 and 2003 plan years. During 2008, Employer A made corrective contributions on behalf of the affected participants. The corrective contributions were credited with Earnings at a rate appropriate for the plan from the date the corrective contributions should have been made to the date of correction and Employer A otherwise complied with the requirements of SCP. Under these facts, Employer A has, within the correction period, corrected the Operational Failures for the 2002 and 2003 plan years with respect to the assets transferred to Plan A, and thus satisfied the requirements of this section 9.

PART V. VOLUNTARY CORRECTION PROGRAM WITH SERVICE APPROVAL (VCP)

SECTION 10. VCP PROCEDURES

.01 VCP requirements. The requirements of this section 10 are satisfied with respect to failures submitted in accordance with the requirements of this section 10 if the Plan Sponsor pays the compliance fee required under section 12 and implements the corrective actions and satisfies any other conditions in the compliance statement described in section 10.08.

.02 Identification of failures. VCP is not based upon an examination of the plan by the Service. Only the failures raised by the Plan Sponsor or failures identified by the Service in processing the submission are addressed under VCP, and only those failures are covered by a VCP compliance statement. The Service will not make any investigation or finding under VCP concerning whether there are failures.

.03 Effect of VCP submission on examination. Because VCP does not arise out of an examination, consideration under VCP does not preclude or impede (under § 7605(b) or any administrative provisions adopted by the Service) a subsequent examination of the Plan Sponsor 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. However, a Plan Sponsor's statements describing failures are made only for purposes of VCP and will not be regarded by the Service as an admission of a failure for purposes of any subsequent examination. See section 5.09 for the definition of Under Examination.

.04 No concurrent examination activity. Except in unusual circumstances, a plan that has been properly submitted under VCP will not be examined while the submission is pending. Notwithstanding the above, a plan that is eligible for a Group Submission under section 10.11 may be examined while the Group Submission is pending with respect to issues not identified in the Group Submission at the time such plan comes Under Examination. In addition, if it is determined that either the plan or the Plan Sponsor was, or may have been, a party to an abusive tax avoidance transaction (as defined under section 4.13(2)), the Service may authorize the examination of the plan, even if a submission pursuant to VCP is pending. This practice regarding concurrent examinations does not extend to other plans of the Plan Sponsor. Thus, any plan of the Plan Sponsor that is not pending under VCP could be subject to examination.

.05 Determination letter application for plan amendments related to a VCP submission. In any case in which a determination letter application is submitted pursuant to section 6.05, the Plan Sponsor must submit concurrently a copy of the amendment or restated plan document, the appropriate determination letter application form (i.e., Form 5300, 5307, or 5310), and the appropriate user fee to the same address as the VCP submission. If a restated plan document is submitted as evidence of correction, the Plan Sponsor must identify the page, the section, and the specific plan language that resolves each specified Qualification Failure in the VCP submission. Pursuant to section 12.03 of Rev. Proc. 2007-44, in the case of individually designed plans, a restated plan generally will be required. The user fee for the determination letter application and the compliance fee for the VCP submission must be paid by separate checks made payable to the United States Treasury.

.06 Determination letter applications not related to a VCP submission. (1) The Service may process a determination letter application submitted under the determination letter program (including an application requested on Form 5310) concurrently with a VCP submission for the same plan. However, issuance of the determination letter in response to an application made on a Form 5310 will be suspended pending the closure of the VCP submission.

(2) A submission of a plan under the determination letter program does not constitute a submission under VCP. If the Plan Sponsor discovers a failure, the failure may not be corrected as part of the determination letter process. The Plan Sponsor may use SCP and VCP instead, as applicable. If the Service, in connection with a determination letter application, discovers failures, the Service may issue a closing agreement with respect to the failures identified or, if appropriate, refer the case to Employee Plans Examinations. In such a case, the fee structure in section 12 relating to VCP does not apply. Except as provided in section 10.06(3), the sanction in section 14.01 relating to Audit CAP applies. See section 5.08(3) for a description of when a plan submitted for a determination letter is considered to be Under Examination for purposes of EPCRS.

(3) If the Service in connection with a determination letter application discovers the plan has not been amended timely for tax legislation changes, the fee structure in section 14.04 applies.

.07 Processing of submission.

(1) Screening of submission. Upon receipt of a VCP submission, the Service will review whether the eligibility requirements of section 4 and the submission requirements of section 11 are satisfied, including whether completed Forms 8950 and 8951 have been included with the VCP submission.

(2) Eligibility of submission. If, at any stage of the review process the Service determines that a VCP submission is seriously deficient or that the application of VCP would be inappropriate or impracticable, the Service reserves the right to return the submission without contacting the Plan Sponsor. A VCP submission that does not include a Form 8950 or Form 8951 will be considered to be seriously deficient. If no substantive processing of the case has occurred, the Service will refund the compliance fee submitted with the request.

(3) Review of submission. Once the Service determines that the submission is complete under VCP, the Service will contact the Plan Sponsor or the Plan Sponsor's representative to discuss the proposed corrections and the plan's administrative procedures.

(4) Additional information required. If additional information is required, a Service representative will generally contact the Plan Sponsor or the Plan Sponsor's representative and explain what is needed to complete the submission. The Plan 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 Employee Plans Examinations. Any request for an extension of the 21-day time period must be made in writing within the 21-day time period and must be approved by the Service (by the applicable group manager).

(5) Additional failures discovered after initial submission. (a) A Plan Sponsor that discovers additional unrelated failures after its initial submission may request that such failures be added to its submission. However, the Service retains the discretion to reject the inclusion of such failures if the request is not timely (for example, if the Plan Sponsor makes its request when processing of the submission is substantially complete) or the application of VCP would be inappropriate or impracticable.

(b) If the Service discovers an unrelated failure while the request is pending, the failure generally will be added to the failures under consideration. However, the Service retains the discretion to determine that a failure is outside the scope of the voluntary request for consideration because the Plan Sponsor did not voluntarily bring this failure forward. In this case, if the additional failure is significant, all aspects of the plan may be examined and the rules pertaining to Audit CAP will apply.

(6) Conference right. If the Service initially determines that it cannot issue a compliance statement because the parties cannot agree upon correction or a change in administrative procedures, the Plan Sponsor (generally through the Plan Sponsor's representative) will be contacted by the Service representative and offered a conference with the Service. The conference can be held either in person or by telephone and must be held within 21 calendar days of the date of contact. The Plan Sponsor 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 writing within the 21-day time period and must be approved by the Service (by the applicable group manager). Additional conferences may be held at the discretion of the Service.

(7) Failure to reach resolution. If the Service and the Plan Sponsor cannot reach agreement with respect to the submission, the matter will be closed, the compliance fee will not be returned, and the case may be referred to Employee Plans Examinations. In the case of an Anonymous Submission that fails to reach resolution under this revenue procedure, the Service will refund 50% of the applicable VCP fee. See section 12 for the VCP fee.

(8) Issuance of compliance statement. (a) In general. If agreement has been reached and all applicable compliance fees have been paid, the Service will send to the Plan Sponsor a compliance statement signed by the Service specifying the corrective action required. However, the Service reserves the right to require the Plan Sponsor to sign the compliance statement. In such a case, the Service will send to the Plan Sponsor an unsigned compliance statement. Within 30 calendar days of the date the compliance statement is sent, the Plan Sponsor must sign and return the compliance statement along with any outstanding compliance fee that may be required. The Service will then issue a signed copy of the compliance statement to the Plan Sponsor. If the Plan Sponsor does not return the compliance statement (along with any outstanding compliance fee) within 30 calendar days, the VCP submission will be closed, and no further action will be taken with respect to the submission. In appropriate circumstances, the plan may be referred to Employee Plans Examinations.

(b) Model VCP Submission Compliance Statement. If the Plan Sponsor included the Appendix C Part I Model VCP Submission Compliance Statement ("Model Compliance Statement") with its VCP submission, then the Service will sign and send to the Plan Sponsor the compliance statement specifying the corrective action required. The Service reserves the right to issue an individually drafted compliance statement in appropriate circumstances. The format and content of the Model Compliance Statement may not be modified or changed in any way.

(c) Modifications to VCP Submission. If a Plan Sponsor materially modifies a VCP submission that was previously filed with the Service, then, unless the Plan Sponsor has submitted a penalty of perjury statement (see section 11.08(1)) with respect to such subsequent modifications, the Plan Sponsor will be required to sign and return the compliance statement under the general procedures described in section 10.07(8)(a).

(9) Timing of correction. The Plan Sponsor must implement the specific corrections and administrative changes set forth in the compliance statement within 150 days of the date of the compliance statement. Any request for an extension of this time period must be made prior to the expiration of the correction period in writing and must be approved by the Service. Correction of the failure to adopt timely good faith amendments, interim amendments, or amendments relating to the implementation of optional law changes, as described in section 6.05(3)(a), must be made by the date of the submission. That is, the submission should include the executed amendments that would correct this failure. See section 6.02(5)(d)(ii) of this revenue procedure for a limited extension of the 150-day correction period set forth in this paragraph for Plan Sponsors taking action to locate lost participants.

(10) Modification of compliance statement. 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 within the correction period provided for in the compliance statement, the compliance fee will be equal to the lesser of one-half of the original compliance fee or $1,500. The request should be sent to the VCP mailing address provided for in section 11.12. The request should include a letter explaining the modification, a copy of the original compliance statement and related VCP submission, any other correspondence relating to the issuance of the original compliance statement, and a check for the VCP compliance fee payable to the United States Treasury, along with completed Forms 8950 and 8951.

(11) Verification. Once the compliance statement has been issued, the Service may require verification that the correction methods have been complied with and that any plan administrative procedures required by the compliance 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 § 7605(b)). If the Service determines that the Plan Sponsor did not implement the corrections and procedures within the stated time period, the plan may be referred to Employee Plans Examinations.

.08 Compliance statement. (1) General description of compliance statement. The compliance statement issued for a VCP submission only addresses the failures identified in the submission, the terms of correction (including any revision of administrative procedures), and the time period within which proposed corrections must be implemented (including any changes in administrative procedures). The compliance statement also provides that the Service will not treat the plan as failing to satisfy the applicable requirements of the Code on account of the failures described in the compliance statement if the conditions of the compliance statement are satisfied. The reliance provided by a compliance statement is limited to the specific failures and years specified and does not provide reliance for any other failure or year.

(2) Failure to adopt timely amendments. (a) Failure to amend plan timely. With respect to a failure to amend a plan timely for good faith amendments, interim amendments, or optional law changes, as described in section 6.05(3)(a) of this revenue procedure, the issuance of a compliance statement will result in the corrective amendments being treated as if they had been adopted timely for the purpose of determining the availability of the remedial amendment period in Rev. Proc. 2007-44. However, the issuance of such a compliance statement does not constitute a determination as to whether the good faith amendment, interim amendment, or other corrective amendment to reflect the implementation of optional law changes, as drafted, complies with the change in qualification requirement. The compliance statement does not constitute a determination as to whether the corrective amendment conforms the terms of the plan to the plan's prior operations, and whether the amendment complies with the requirements of § 401(a), including the requirements of §§ 401(a)(4), 410(b), and 411(d)(6).

(b) Failure to adopt 403(b) Plan timely. A failure to adopt a 403(b) Plan in accordance with the final regulations under § 403(b) and Notice 2009-3 may be corrected under VCP. The issuance of a compliance statement will result in the 403(b) Plan being treated as if it had been adopted timely for the purpose of making available the extended remedial amendment period set forth in Announcement 2009-89. However, the issuance of a compliance statement does not constitute a determination as to whether the written plan, as drafted, complies with the applicable requirements of § 403(b) and the final § 403(b) regulations.

(3) Administrative procedures required. Where current procedures are inadequate for operating the plan in conformance with the applicable requirements of the Code, the compliance statement will be conditioned upon the implementation of stated administrative procedures. The Service may prescribe appropriate administrative procedures in the compliance statement.

(4) Compliance statement conditioned upon timely correction. The compliance statement is conditioned on (i) there being no misstatement or omission of material facts in connection with the submission and (ii) the implementation of the specific corrections and satisfaction of any other conditions in the compliance statement.

(5) Authority delegated. Compliance statements (including relief from any excise tax or other penalty as provided under section 6.09) are authorized to be signed by managers within Employee Plans Rulings and Agreements, under the Tax Exempt and Government Entities Operating Division of the Service.

.09 Effect of compliance statement on examination. The compliance statement is binding upon both the Service and the Plan Sponsor or Eligible Organization (as defined in section 10.11(2)) with respect to the specific tax matters identified therein for the periods specified, but does not preclude or impede an examination of the plan by the Service relating to matters outside the compliance statement, even with respect to the same taxable year or years to which the compliance statement relates.

.10 Special rules relating to Anonymous Submissions. (1) The Anonymous Submission procedure in this section 10.10 permits submission of a Qualified Plan, 403(b) Plan, SEP, and SIMPLE IRA Plan under VCP without initially identifying the applicable plan, the Plan Sponsor, or the Eligible Organization. The requirements of this revenue procedure relating to VCP, including sections 10, 11, and 12, apply to these submissions. Information identifying the plan or the Plan Sponsor may be redacted (and the power of attorney statement and the penalty of perjury statement need not be included with the initial submission). In addition, if a determination letter application will be requested as part of the submission, the determination letter application should not be submitted until the time all identifying information is provided to the Service. For purposes of processing the submission, the state of the Plan Sponsor must be identified in the initial submission. All Anonymous Submissions must be numbered or labeled on the first page of the VCP submission by the Plan Sponsor or its representative to facilitate identification and tracking of the submission. The identification number must be unique to the submission and should not be used with respect to any other Anonymous Submission of the Plan Sponsor or representative. If the submission is made by an individual who represents the Plan Sponsor, such individual must satisfy the power of attorney requirements described in section 11.07. As part of the submission, the representative must, under penalty of perjury, assert that the representative complies with the power of attorney requirements described in section 11.07 and that the representative will submit an executed copy of a Form 2848 upon the disclosure of the identity of the Plan Sponsor to the Service. Once the Service and the plan representative reach agreement with respect to the submission, the Service will contact the plan representative in writing indicating the terms of the agreement. The Plan Sponsor will have 21 calendar days from the date of the letter of agreement to identify the plan and Plan Sponsor. If the Plan Sponsor does not submit the identifying material (including the power of attorney statement and the penalty of perjury statement) within 21 calendar days from the date of the letter of agreement, the matter will be closed and the compliance fee will not be returned.

(2) Notwithstanding section 10.04, until each plan and Plan Sponsor is identified to the Service, a submission under this subsection does not preclude or impede an examination of the Plan Sponsor or its plan. Thus, a plan submitted under the Anonymous Submission procedure that comes Under Examination prior to the date the identifying materials of each plan and Plan Sponsor are received by the Service will no longer be eligible under VCP.

.11 Special rules relating to Group Submissions. (1) General rules. An Eligible Organization may submit a VCP request for a Qualified Plan, a 403(b) Plan, a SEP, or a SIMPLE IRA Plan under a Group Submission for Plan Document, Operational, and Employer Eligibility Failures. If a sponsor of a master or prototype plan submits failures with respect to more than one master or prototype plan, each plan will be treated as a separate submission and a separate fee must be submitted for each prototype plan. Similarly, if a Volume Submitter practitioner submits failures with respect to more than one Volume Submitter Specimen plan, each plan will be treated as a separate submission and a separate fee must be submitted for each specimen plan. For this purpose, in the case of either the prototype plan or specimen plan, the number of plans is determined with reference to the number of basic plan documents, not adoption agreements. See section 12.05.

(2) Eligible Organizations. For purposes of a Group Submission, the term "Eligible Organization" means either (a) a Sponsor (as that term is defined in section 4.07 of Rev. Proc. 2005-16, 2005-10 I.R.B. 674, or Rev. Proc. 2011-49, 2011-44 I.R.B. 608) of a master or prototype plan, (b) a Volume Submitter practitioner, as that term is defined in section 13.04 of Rev. Proc. 2005-16 or section 13.05 of Rev. Proc. 2011-49, 2011-44 I.R.B. 608, (c) an insurance company or other entity that has issued annuity contracts or provides services with respect to assets for 403(b) Plans, or (d) an entity that provides its clients with administrative services with respect to Qualified Plans, 403(b) Plans, SEPs, or SIMPLE IRA Plans. An Eligible Organization is not eligible to make a Group Submission unless the failures in the submission result from a systemic error involving the Eligible Organization that affects at least 20 plans and results in at least 20 plans implementing correction. If, at any time before the Service issues the compliance statement, the number of plans falls below 20, the Eligible Organization must notify the Service that it is no longer eligible to make a Group Submission. Under these circumstances the compliance fee may be retained by the Service.

(3) Special Group Submission procedures. (a) In general, a Group Submission is subject to the same procedures as any VCP submission in accordance with sections 10 and 11, except that the Eligible Organization is responsible for performing the procedural obligations imposed on the Plan Sponsor under sections 10 and 11. See section 11.03(12) for a special submission requirement with respect to Group Submissions.

(b) The Eligible Organization must provide notice to all Plan Sponsors of the plans included in the Group Submission. The notice must be provided at least 90 days before the Eligible Organization provides the Service with the information required in section 10.11(3)(c). The purpose of the notice is to provide each Plan Sponsor with information relating to the Group Submission request. The notice should explain the reason for the Group Submission and inform the Plan Sponsor that the Plan Sponsor's plan will be included in the Group Submission unless the Plan Sponsor responds within the 90-day period requesting that the Plan Sponsor's plan be excluded from the Group Submission.

(c) When an Eligible Organization receives an unsigned compliance statement on the proposed correction and agrees to the terms of the compliance statement, the Eligible Organization must return to the Service within 120 calendar days not only the signed compliance statement and any additional compliance fee under section 12.05, but also a list containing (i) the employer tax identification numbers for the Plan Sponsors of the plans to which the compliance statement may be applicable, (ii) the plans by name, plan number, type of plan, and number of plan participants, (iii) a certification that each Plan Sponsor received notice of the Group Submission, and (iv) a certification that each Plan Sponsor timely filed the Form 5500 series return for the most recent plan year for which the Form 5500 series return was required to have been filed. This list can be submitted at any stage of the submission process provided that the requirements of section 10.11(3)(b) have been satisfied. Applicants are encouraged to submit the list on a computer disk in Microsoft Word. Only those plans for which correction is actually made within 240 calendar days of the date of the signed compliance statement (or within such longer period as may be agreed to by the Service at the request of the Eligible Organization) will be covered by the compliance statement.

(d) Notwithstanding section 4.02, if a Plan Sponsor of a plan that is eligible to be included in the Group Submission and has not requested to be excluded from the Group Submission pursuant to section 10.11(3)(b) is notified of an impending Employee Plans examination after the Eligible Organization filed the Group Submission with the Service, the Plan Sponsor's plan will be included in the Group Submission. However, with respect to such plan, the Group Submission will not preclude or impede an examination of the plan with respect to any failures not identified in the Group Submission at the time the plan comes Under Examination.

.12 Multiemployer and multiple employer plans. (1) In the case of a multiemployer or multiple employer plan, the plan administrator (rather than any contributing or adopting employer) must request consideration of the plan under VCP. The request must be with respect to the plan, rather than a portion of the plan affecting any particular employer.

(2) If a VCP submission for a multiemployer or multiple employer plan has failures that apply to fewer than all of the employers under the plan, the plan administrator may choose to have the compliance fee (in section 12) or sanction (in section 14) calculated separately for each employer based on the participants attributable to that employer, rather than having the compliance fee calculated based on the participants of the entire plan. For example, the plan administrator may choose to apply the provisions of this paragraph when the failure is attributable in whole or in part to data, information, actions, or inactions that are within the control of the employers rather than the multiemployer or multiple employer plan (such as a failure attributable in whole or in part to the failure of an employer to provide the plan administrator with full and complete information).

SECTION 11. SUBMISSION PROCEDURES FOR VCP

.01 General rules. (1) A VCP submission must satisfy the requirements of this section 11.

(2) A VCP submission must include completed Forms 8950 and 8951.

(3) A VCP submission must include a description of the failures, a description of the proposed methods of correction, and other procedural items set forth in this section 11. Appendix C of this revenue procedure is provided to assist applicants in satisfying these requirements. Applicants are encouraged to use the Model Compliance Statement format set forth in Part I of Appendix C and, where appropriate, one or more of Schedules 1 through 9 contained in Part II of Appendix C ("Schedules"), without modifying the text and format of the Appendix C documents.

.02 Use of Schedules. (1) Schedules 1 through 9 provide descriptions of common qualification failures and standardized correction methods which may be submitted in lieu of individually drafted descriptions. For applicants that do not choose to use the Model Compliance Statement, the Schedules can be used to satisfy certain requirements of this revenue procedure.

(2) Multiple Schedules may be included in a single VCP submission.

(3) A Schedule may be used only if its printed content applies without modification to the applicant's situation.

(4) The following failures are described in the Schedules:

(a) Interim and Certain Discretionary Nonamender Failures (Schedule 1): If the Plan Sponsor failed to adopt timely good faith amendments, interim amendments, or amendments required to reflect the changed operation of the plan on account of the Plan Sponsor's decision to implement optional law changes (see section 6.05(3)(a) of this revenue procedure for a description of each of these amendments), the Plan Sponsor may submit Schedule 1. Schedule 1 may be used only if the corrective amendment was adopted before the expiration of the plan's extended remedial amendment period (as determined under Rev. Proc. 2007-44) for that amendment.

(b) Nonamender Failures and Failure to Adopt a 403(b) Plan Timely (Schedule 2): If the Plan Sponsor failed to adopt timely amendments to comply with required legislative or regulatory changes (other than as described in section 11.02(4)(a)) or failed to adopt a 403(b) Plan timely in accordance with the final regulations under § 403(b) and Notice 2009-3, the Plan Sponsor may submit Schedule 2.

(c) SEPs and SARSEPs (Schedule 3): If the Plan is a SEP or a SARSEP and experienced one or more of the failures shown on Schedule 3, and the Plan Sponsor proposes to correct such failure(s) by using the method(s) provided on such schedule, the Plan Sponsor may submit Schedule 3.

(d) SIMPLE IRAs (Schedule 4): If the Plan is a SIMPLE IRA and experienced one or more of the failures shown on Schedule 4, and the Plan Sponsor proposes to correct such failure(s) by using the method(s) provided on such schedule, the Plan Sponsor may submit Schedule 4.

(e) Plan Loan Failures (Schedule 5): If the Plan Sponsor failed to administer loans in accordance with the provisions of § 72(p)(2), the failure solely relates to employees who are neither key employees (as defined in § 416(i)(1)) nor self-employed individuals (as defined in § 401(c)(1)(B)), and proposes to correct such failure(s) by using the method(s) provided on such schedule, the Plan Sponsor may submit Schedule 5.

(f) Employer Eligibility Failure (Schedule 6): If the Plan Sponsor failed to satisfy the criteria for an employer to sponsor either a 403(b) Plan or a § 401(k) plan, and proposes to correct such failure by using the method provided on such schedule, the Plan Sponsor may submit Schedule 6.

(g) Failure to Distribute Elective Deferrals in Excess of the § 402(g) Limit (Schedule 7): If the plan failed to distribute elective deferrals made in excess of the § 402(g) limit and the Plan Sponsor proposes to correct such failure using the method described in Appendix A, section .04, the Plan Sponsor may submit Schedule 7.

(h) Failure to Pay Required Minimum Distributions Timely under § 401(a)(9) (Schedule 8): If the plan failed to make required minimum distributions pursuant to § 401(a)(9) and proposes to correct such failure using the method described in Appendix A, section .06, then the Plan Sponsor may submit Schedule 8.

(i) Correction by Plan Amendment (in accordance with Appendix B) (Schedule 9): The Plan Sponsor may submit Schedule 9 if one or more of the following applies:

(1) Identification of failures. A complete description of the failures, the years in which the failures occurred, including closed years (that is, years for which the statutory period has expired), and the number of employees affected by each failure.

(2) Explanation. An explanation of how and why the failures arose, including a description of the administrative procedures applicable to the failures in effect at the time the failures occurred.

(3) Proposed method of correction. A detailed description of the method for correcting the failures that the Plan Sponsor has implemented or proposes to implement. Each step of the correction method must be described in narrative form. The description must include the specific information needed to support the suggested correction method. This information includes, for example, the number of employees affected and the expected cost of correction (both of which may be approximated if the exact number cannot be determined at the time of the request), the years involved, and calculations or assumptions the Plan Sponsor used to determine the amounts needed for correction.

(4) Earnings or actuarial adjustments. A description of the methodology that will be used to calculate Earnings or actuarial adjustments on any corrective contributions or distributions (indicating the computation periods and the basis for determining Earnings or actuarial adjustments, in accordance with section 6.02(4)).

(5) Computations. Specific calculations for each affected employee or a representative sample of affected employees. The sample calculations must be sufficient to demonstrate each aspect of the correction method proposed. For example, if a Plan Sponsor requests a compliance statement with respect to a failure to satisfy the contribution limits of § 415(c) and proposes a correction method that involves elective deferrals (whether matched or unmatched) and matching contributions, the Plan Sponsor must submit calculations illustrating the correction method proposed with respect to each type of contribution. As another example, with respect to a failure to satisfy the ADP test in § 401(k)(3), the Plan Sponsor must submit the ADP test results both before the correction and after the correction.

(6) Former employees or beneficiaries. The method(s) that will be used to locate and notify former employees and beneficiaries, or an affirmative statement that no former employees or beneficiaries were affected by the failures or will be affected by the correction.

(7) Change in administrative procedures. A description of the measures that have been or will be implemented to ensure that the same failures will not recur.

(8) Request for excise tax relief (§ 4972, 4973, 4974, or 4979) or additional tax relief under § 72(t). If excise tax or additional tax relief is sought, a specific request for relief should be included in the submission, along with explanations, where applicable, supporting such request.

(9) Loan failures and income tax reporting relief. A specific request for relief needs to be made if the applicant either wants relief from reporting a corrected participant loan as a deemed distribution or wants to report the loan as a deemed distribution in the year of correction instead of the year in which the deemed distribution occurred.

(10) Transferred Assets. If a submission includes a failure that relates to Transferred Assets and the failure occurred prior to the transfer, a description of the transaction (including the dates of the employer change and the plan transfer).

(11) 403(b) Plans. In the case of a 403(b) Plan submission, a statement that the Plan Sponsor has contacted all other entities involved with the plan and has been assured of cooperation in implementing the applicable correction, to the extent necessary. For example, if the plan's failure is the failure to satisfy the requirements of § 403(b)(1)(E) regarding elective deferrals, the Plan Sponsor must, prior to making the VCP submission, contact the insurance company or custodian with control over the plan's assets to assure cooperation in effecting a distribution of the excess deferrals adjusted for Earnings thereon. A submission under VCP must also contain a statement as to the type of employer (e.g., a tax-exempt organization described in § 501(c)(3)) that is making the VCP submission.

(12) Group Submissions. A Group Submission must be signed by the Eligible Organization or the Eligible Organization's authorized representative and accompanied by a copy of the relevant portions of the plan document(s).

(13) Orphan Plans. If the plan is an Orphan Plan, the applicant should indicate whether relief from correction or from the VCP compliance fee is being requested and the support for such relief. See sections 6.02(5)(f) and 12.02(4).

.04 Required documents. A VCP submission must be accompanied by the following documents:

(1) Forms 8950 and 8951. Forms 8950 and 8951 must be included with a VCP submission.

(2) Plan document. A copy of the entire plan document or the relevant portions of the plan document. For example, in a case involving an improper exclusion of eligible employees from a profit-sharing plan with a cash or deferred arrangement, relevant portions of the plan document include the eligibility, allocation, and cash or deferred arrangement provisions of the basic plan document (and the adoption agreement, if applicable), along with applicable definitions in the plan. In the case of a SEP and a SIMPLE IRA Plan, the entire plan document should be submitted.

(3) Determination letter application. In any case in which correction of a Qualification Failure is made by plan amendment, as permitted under section 4.05, and the Plan Sponsor is submitting a determination letter request as required under section 6.05, the Plan Sponsor must submit, concurrently and to the same address as the VCP submission, a copy of the amendment or restated plan document, the appropriate application form (i.e., Form 5300, 5307, or 5310), the appropriate user fee, and the most recent version of the Form 8717, User Fee for Employee Plan Determination, Opinion and Advisory Letter Request. The user fee for the determination letter application and the compliance fee for the VCP submission must be paid by separate checks made payable to the United States Treasury. Include a photocopy of each check with the submission. If the appropriate fees are not included in the submission, the submission may be returned. If a restated plan document is being submitted as evidence of correction, the Plan Sponsor must indentify the page and section of the document, and the specific plan language that resolves the Qualification Failure.

.05 Date fee due generally. Except as provided in sections 11.06 and 12.02(4), the VCP fee under section 12 and, if applicable, the determination letter user fee must be included with the submission. The VCP fee and the determination letter user fee must be paid by separate checks made payable to the United States Treasury. Include a photocopy of each check with the submission. If the appropriate fees are not included in the submission, the submission may be returned.

.06 Additional fee due for SEPs, SIMPLE IRA Plans, and Group Submissions. In the case of a SEP, a SIMPLE IRA Plan, or a Group Submission, the initial fee described in section 12.02, 12.04, or 12.05 must be included in the submission and any additional fee is due at the time the compliance statement is signed by the Plan Sponsor and returned to the Service, or when agreement has been reached between the Service and the Plan Sponsor regarding correction of the failure(s).

.07 Power of attorney requirements. To appear before the Service in connection with the submission, the Plan Sponsor's representative must comply with the requirements of section 9.02(11) and (12) of Rev. Proc. 2012-4, 2012-1 I.R.B. 125, and submit Form 2848, Power of Attorney and Declaration of Representative. A Form 2848 that designates a representative not qualified to sign Part II of the Form 2848, e.g., an unenrolled return preparer, will not be accepted. However, a Plan Sponsor may authorize an individual, such as an unenrolled return preparer, to inspect or receive confidential information using Form 8821 Tax Information Authorization. (See Form 8821 and Instructions) See section 10.10 for special rules relating to Anonymous Submissions.

.08 Penalty of perjury statement. (1) The Plan Sponsor must sign the penalty of perjury statement on the Form 8950 as part of a VCP submission. In addition, the following declaration must accompany any new factual information or change in the VCP submission made 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 this submission are true, correct, and complete." The declaration must be signed by the Plan Sponsor, not the Plan Sponsor's representative.

(2) If the VCP submission is an Anonymous Submission made pursuant to section 10.10, and the submission is made by an individual authorized to represent the Plan Sponsor, the individual must submit the following statement: "Under penalties of perjury, I declare that I am an authorized representative of the Plan Sponsor who complies with the Power of Attorney requirements described in section 11.07 of Revenue Procedure 2013-12. I will submit an executed Form 2848 upon the disclosure of the identity of the Plan Sponsor to the Service."

.09 Procedural Requirements Checklist. The Service will be able to respond more quickly to a VCP submission if the submission is carefully prepared and complete. The checklist provided on Form 8950 and the instructions to Forms 8950 and 8951 are designed to assist Plan Sponsors and their representatives in preparing the information and documents required under this revenue procedure.

.10 Orphan Plan. The VCP submission should indicate if, appropriate, that it concerns an Orphan Plan and should include information that establishes that the applicant is an Eligible Person as defined in section 5.03(2).

.11 Acknowledgement letter. The Service will acknowledge receipt of a VCP submission if the Plan Sponsor or the Plan Sponsor's representative completes the Acknowledgement Form in Appendix D and includes it in the submission. A separate Acknowledgement Form should be included for each plan submitted. A photocopy of Appendix D may be used.

.12 VCP mailing addresses. Use the following addresses for VCP submissions and any accompanying determination letter applications:

.14 Assembling the submission. (1) The documents comprising a VCP submission, including any required determination letter application, must be mailed to the Service in a single package. As the Service will process the VCP submission and accompanying determination letter application separately, any documents required to be filed for both the VCP submission and the accompanying determination letter application must be provided in duplicate. All information required for the VCP submission and any accompanying determination letter application must be assembled separately behind the appropriate form (e.g. Form 8951 and Form 5300). For example, if the VCP submission and determination letter application require the inclusion of a plan amendment, then two copies of the amendments will be needed -- one for the VCP submission and one for the determination letter application. If a determination letter application is included with a VCP submission, any acknowledgement letter issued by the Service with regard to the application will be mailed under separate cover, and will not be issued concurrently with any voluntarily submitted Appendix D VCP Acknowledgement Letter.

(2) The Service will be able to process a VCP submission more quickly if it is assembled in the following order:

.01 VCP fees. (1) The compliance fees for all submissions under VCP are determined under this section 12. All fees must be paid upon filing the VCP submission (except for any special fees described in sections 12.05 and 12.06(2)). The check made payable to the United States Treasury must be attached to the front of Form 8951.

(2) The check may be converted to an electronic fund transfer. "Electronic fund transfer" is the term used to refer to the process by which the Service electronically instructs the financial institution holding the funds to transfer funds from the account named on the check to the U.S. Treasury account, rather than processing the check. By sending a completed, signed check to the Service, the Service is authorized to copy the check and to use the account information from the check to make an electronic fund transfer from the account for the same amount as the check. If the electronic fund transfer cannot be processed for technical reasons, the Service is authorized to process the copy of the check. The electronic fund transfer from an account will usually occur within 24 hours, which is faster than a check is normally processed. Therefore, it is necessary to ensure there are sufficient funds available in the checking account when the check is sent to the Service. The check will not be returned from the financial institution.

.02 VCP fee for Qualified Plans and 403(b) Plans. (1) Except as otherwise provided in this section 12, the compliance fee for a submission under VCP for Qualified Plans and 403(b) Plans (including Anonymous Submissions) is determined in accordance with the following chart.

 Number of Participants                             Fee

(3) If (a) a VCP submission involves a loan failure that is corrected in accordance with section 6.07, (b) the failure does not affect more than 25% of the Plan Sponsor's participants in any of the year(s) in which the failure occurred, and (c) the failure is the only failure described in the submission, the compliance fee for a VCP submission determined under the provisions of section 12.02(1) is reduced by 50%.

(4) At the discretion of the Service, the compliance fee may be waived in the case of a terminating Orphan Plan. In such a case, the submission must include a request for a waiver of the VCP fee.

(5) If (a) a VCP submission involves a failure to adopt a written 403(b) Plan timely in accordance with the final regulations under § 403(b) and Notice 2009-3, (b) the failure is the only failure included in the submission, and (c) the VCP submission is made within the one-year period beginning with the date of publication of this revenue procedure, the applicable compliance fee under section 12.02(1) is reduced by 50%. The VCP submission must be sent to the Service no later than December 31, 2013, in order to be eligible for the reduced fee.

.03 VCP fee for nonamender failures. (1) In general, the compliance fee for plans with a nonamender failure, as described in section 6.05, is determined in accordance with the chart in section 12.02(1). The applicable fee for a VCP submission that contains only nonamender failures is reduced by 50% if it is submitted within a one-year period following the expiration of the plan's remedial amendment period for complying with such changes.

(2) Notwithstanding section 12.03(1), the compliance fee for a submission that contains only a failure to adopt timely good faith amendments, interim amendments, or amendments required to implement optional law changes, as described in section 6.05(3)(a), is $375.

(3) Notwithstanding section 12.03(1), the compliance fee for a submission that contains only a failure to adopt an amendment (upon which a favorable determination letter is conditioned) within the applicable remedial amendment period as described in section 6.05(3)(d) is $500, provided the required amendment is adopted within three months of the expiration of the remedial amendment period for adopting the amendment as provided in the plan's most recent determination letter.

.04 VCP fee for multiple failures. Generally, the VCP fee is determined under section 12.02(1). However, if the submission consists of failures, each of which is subject to reduced fees under section 12.02(2), 12.02(3), 12.02(5), 12.03(1), 12.03(2), or 12.03(3), and if the sum of the reduced fees is less than the fee under section 12.02 (1), then the reduced fee applies. See section 11.02(4).

.05 VCP fee for Group Submission. The compliance fee for a Group Submission is based on the number of plans affected by the failure as described in the compliance statement. The initial fee for the first 20 plans is $10,000. An additional fee is due equal to the product of the number of plans in excess of 20 multiplied by $250. The maximum compliance fee for a Group Submission is $50,000. If additional plans are added following the Group Submission, the additional fee is paid subject to the $50,000 maximum compliance fee. With respect to pre-approved plans, the compliance fee is determined based on the number of basic plan documents submitted and the number of employers who have adopted each basic plan by using an adoption agreement associated with that basic plan. For example, a pre-approved defined contribution basic plan has three associated adoption agreements: a profit sharing adoption agreement, a § 401(k) adoption agreement, and a money purchase adoption agreement. The compliance fee would be based on the number of employers that adopted the basic plan by using any of the three associated adoption agreements. See section 10.11(1).

.06 VCP fee for SEPs and SIMPLE IRA Plans. (1) In general, the compliance fee for a SEP or a SIMPLE IRA Plan submission (including an Anonymous Submission) is $250. Notwithstanding the preceding sentence, the Service reserves the right to impose the fee schedule under section 12.02 (or section 12.07) in appropriate circumstances.

(2) In any case in which a SEP or SIMPLE IRA Plan correction is not similar to a correction for a similar Qualification Failure (as provided under section 6.10(1)), the Service may impose an additional fee. If the failure involves an Excess Amount under a SEP or a SIMPLE IRA Plan and the Plan Sponsor retains the Excess Amount in the SEP or SIMPLE IRA Plan, a fee equal to at least 10% of the Excess Amount with no adjustment for Earnings will be imposed. This is in addition to the SEP or SIMPLE IRA Plan compliance fee set forth in section 12.06(1).

.07 VCP fee for egregious or intentional failures. Notwithstanding the preceding provisions of this section 12, in cases involving failures that are egregious (as described in section 4.11) or where the failure is not inadvertent (i.e., is not a result of an oversight or mistake), the compliance fee for Qualified Plans, 403(b) Plans, SEPs, and SIMPLE IRA Plans is the greater of (1) the fee that would be determined under the preceding provisions of this section 12 or (2) an amount equal to a negotiated percentage of the Maximum Payment Amount, with such percentage not to exceed 40%.

.08 Establishing the number of plan participants. Compliance fees under this section 12 are determined based on the total number of plan participants. For a description of a participant, see the Instructions for Form 5500. For new plans and ongoing plans, the number of plan participants is determined from the most recently filed Form 5500 series. Thus, with respect to the applicable 2010 or 2011 Form 5500, the Plan Sponsor would use the number shown in item 6f (or the equivalent item on the Form 5500-SF or EZ) to establish the total number of plan participants. In the case of a terminated plan, the Form 5500 used to determine the number of plan participants must be the one filed for the plan year prior to the plan year for which the Final Form 5500 return was filed. If the submission involves a plan with Transferred Assets and no new incidents of the failure occurred after the end of the second plan year that begins after the corporate merger, acquisition, or other similar employer transaction, the Plan Sponsor may calculate the number of plan participants based on the Form 5500 information that would have been filed by the Plan Sponsor for the plan year that includes the employer transaction if the Transferred Assets were maintained as a separate plan. If the Plan Sponsor is not required to file a Form 5500 series return with regard to any Qualified Plan or 403(b) Plan eligible for VCP, the number of plan participants for compliance fee purposes will generally be the number of plan participants as of the last day of the most recently completed plan year preceding the date of the VCP submission. However, if this information has not been compiled by the time the Plan Sponsor is ready to make a VCP submission to the Service, the Plan Sponsor may use the number of plan participants associated with the most recently completed prior plan year for which information on the number of plan participants is available. This exception would not apply if the VCP submission is mailed to the Service more than seven months after the close of the most recently completed plan year preceding the date of the VCP submission.

.09 Insufficient VCP fee. If the compliance fee included with the VCP submission is less than the compliance fee required under this section 12, the submission may be returned.

PART VI. CORRECTION ON AUDIT (AUDIT CAP)

SECTION 13. DESCRIPTION OF AUDIT CAP

.01 Audit CAP requirements. If the Service identifies a Qualification or 403(b) Failure (other than a failure that has been corrected in accordance with SCP or VCP) upon an Employee Plans or Exempt Organizations examination of a Qualified Plan, 403(b) Plan, SEP, or SIMPLE IRA Plan, the requirements of this section 13 are satisfied with respect to the failure if the Plan Sponsor corrects the failure, pays a sanction in accordance with section 14, satisfies any additional requirements of section 13.03, and enters into a closing agreement with the Service. This section 13 also applies if the Service identifies a participant loan that did not comply with the requirements of § 72(p)(2) (other than a loan failure that is corrected in accordance with SCP or VCP) upon an Employee Plans or Exempt Organizations examination of a Qualified Plan or 403(b) Plan.

.02 Payment of sanction. Payment of the sanction under section 14 generally is required at the time the closing agreement is signed. All sanction amounts should be submitted by certified check or cashier's check made payable to the United States Treasury.

.03 Additional requirements. Depending on the nature of the failure, the Service will discuss the appropriateness of the plan's existing administrative procedures with the Plan Sponsor. If existing administrative procedures are inadequate for operating the plan in conformance with the applicable requirements of the Code, the closing agreement may be conditioned upon the implementation of stated procedures. In addition, pursuant to section 6.05, the Plan Sponsor may be required to obtain a Favorable Letter before the closing agreement is signed. If a Favorable Letter is required, the Plan Sponsor is required to pay the applicable user fee for obtaining the letter.

.04 Failure to reach resolution. If the Service and the Plan Sponsor cannot reach an agreement with respect to the correction of the failure(s) or the amount of the sanction then the plan will be disqualified, the plan or contract will be treated as if it did not comply with § 403(b), the SEP will be treated as if it did not comply with § 408(k), or the SIMPLE IRA Plan will be treated as if it did not comply with § 408(p), as applicable.

.05 Effect of closing agreement. A closing agreement constitutes an agreement between the Service and the Plan Sponsor that is binding with respect to the tax matters identified in the agreement for the periods specified.

.06 Other procedural rules. The procedural rules for Audit CAP are set forth in Internal Revenue Manual ("IRM") 7.2.2. EPCRS.

SECTION 14. AUDIT CAP SANCTION

.01 Determination of sanction. Except as otherwise provided in section 14.04, the sanction under Audit CAP is a negotiated percentage of the Maximum Payment Amount. Sanctions will not be excessive and will bear a reasonable relationship to the nature, extent, and severity of the failures, based on the factors below. In the case of any participant loan that did not comply with the requirements of § 72(p)(2), the Maximum Payment Amount will include the tax the Service could collect as a result of the loan not being excluded from gross income under § 72(p)(2).

.02 Factors considered. Factors include: (1) the steps taken by the Plan Sponsor to ensure that the plan had no failures; (2) the steps taken to identify failures that may have occurred; (3) the extent to which correction had progressed before the examination was initiated, including full correction; (4) the number and type of employees affected by the failure; (5) the number of nonhighly compensated employees who would be adversely affected if the plan were not treated as qualified or as satisfying the requirements of § 403(b), 408(k), or 408(p); (6) whether the failure is a failure to satisfy the requirements of § 401(a)(4), 401(a)(26), or 410(b), either directly or through § 403(b)(12); (7) whether the failure is solely an Employer Eligibility Failure; (8) the period over which the failure(s) occurred (for example, the time that has elapsed since the end of the applicable remedial amendment period under § 401(b) for a Plan Document Failure); and (9) the reason for the failure(s) (for example, data errors such as errors in transcription of data, the transposition of numbers, or minor arithmetic errors). Factors relating only to Qualified Plans also include: (1) whether the plan is the subject of a Favorable Letter; and (2) whether the failure(s) were discovered during the determination letter process. If one of the failures discovered during an Employee Plans examination includes the failure to amend the plan timely for relevant legislation, it is expected that the sanction will be greater than the applicable fee described in section 14.04. An additional factor taken into account with respect to a participant loan that did not comply with the requirements of § 72(p)(2) is the extent to which the failure is a result solely of action (or inaction) of the employer or its agents (or the extent to which the failure is a result of the employee's or beneficiary's actions or inaction).

.03 Transferred Assets. If the examination involves a plan with Transferred Assets and the Service determines that no new incidents of the failures that relate to the Transferred Assets occur after the end of the second plan year that begins after the corporate merger, acquisition, or other similar employer transaction, the sanction under Audit CAP will not exceed the sanction that would apply if the Transferred Assets were maintained as a separate plan.

.04 Fee for nonamenders discovered during the determination letter application process not related to a VCP submission. (1) Except as provided in section 14.04(3) and (4), the compliance fee for nonamenders (as defined in section 6.05(2)(a)(ii)) not voluntarily identified by the Plan Sponsor, but instead discovered by the Service in connection with the determination letter application process as described in section 5.03(3) is determined in accordance with the chart below. This fee schedule applies if the only failure discovered during the application process is the nonamender failure.

                Emplo-   Emplo-

(a) Employee Retirement Income Security Act of 1974 (ERISA),

(b) Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA); Deficit Reduction Act of 1984 (DEFRA); and Retirement Equity Act of 1984 (REA) together (T/D/R),

(c) Tax Reform Act of 1986 (TRA '86),

(d) Unemployment Compensation Act of 1992 (UCA); Omnibus Budget and Reconciliation Act of 1993 (OBRA '93),

(e) The Uruguay Round Agreements Act; the Uniformed Services Employment and Reemployment Rights Act of 1994; the Small Business Job Protection Act of 1996; the Taxpayer Relief Act of 1997; the Internal Revenue Service Restructuring and Reform Act of 1998; and the Community Renewal Tax Relief Act of 2000 (collectively known as "GUST"),

(f) Final and temporary regulations under § 401(a)(9), 74 FR 18987, published on April 17, 2002 ("401(a)(9) Regs"), and

(g) The Employer's 1^st 5 or 6 year Remedial Amendment Cycle (RAC), includes the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA") and the 2004 through the 2009 Cumulative List.

(h) The Employer's 2^nd 5 or 6 year Remedial Amendment Cycle, includes the 2010 through the 2014 Cumulative List.

(3) If the sole failure consists of the failure to adopt good faith amendments, interim amendments, or amendments required to reflect the changed operation of the plan on account of the Plan Sponsor's decision to implement optional law changes (as described in section 6.05(3)(a)) by their applicable deadlines, but before the expiration of the plan's extended remedial amendment period, then the fee is 40% of the applicable fee under "Employer's 2^nd Remedial Amendment Cycle" on the chart in section 14.04(1).

(4) If the sole failure consists of a failure to timely adopt an amendment (upon which a favorable determination letter was conditioned) within the applicable remedial amendment period, the fee is $1,000 regardless of the number of plan participants, provided the required amendment is adopted within three months of the expiration of the remedial amendment period for adopting the amendment.

PART VII. EFFECT ON OTHER DOCUMENTS; EFFECTIVE DATE; PAPERWORK REDUCTION ACT

SECTION 15. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 2008-50 is modified and superseded by this revenue procedure.

SECTION 16. EFFECTIVE DATE

This revenue procedure is generally effective April 1, 2013. However, Plan Sponsors are permitted, at their option, to apply the provisions of this revenue procedure on or after December 31, 2012. Plan Sponsors that choose this option must include Forms 8950 and 8951 with their VCP submissions made to the new mailing addresses set forth in section 11.12. For 403(b) Plans,the definitions under Rev. Proc. 2008-50 apply to failures that occurred in taxable years beginning before January 1, 2009.

SECTION 17. PAPERWORK REDUCTION ACT

The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-1673.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.

The collection of information in this revenue procedure is in sections 4.05, 6.02(5)(d), 6.05, 6.09(5), 6.09(6), 10.01, 10.02, 10.05-.07, 10.10-10.12, 11.02-11.05, 11.07-11.14, 13.01, sections 2.01-2.07 of Appendix B, Appendix C, and Appendix D. This information is required to enable the Commissioner, Tax Exempt and Government Entities Division of the Internal Revenue Service to consider the issuance of various types of closing agreements and compliance statements. This information will be used to issue closing agreements and compliance statements to allow individual plans to continue to maintain their tax favored status. As a result, favorable tax treatment of the benefits of the eligible employees is retained. The likely respondents are individuals, state or local governments, businesses or other for-profit institutions, nonprofit institutions, and small businesses or organizations.

The estimated total annual reporting or recordkeeping burden is 86,148 hours.

The estimated annual burden per respondent/recordkeeper varies from .5 to 45.5 hours, depending on individual circumstances, with an estimated average of 20.4 hours. The estimated number of respondents or recordkeepers is 4,300.

The estimated frequency of responses is occasional.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally tax returns and tax return information are confidential, as required by 26 U.S.C. § 6103.

DRAFTING INFORMATION

The principal author of this revenue procedure is Paul C. Hogan of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this revenue procedure, please contact the Employee Plans' taxpayer assistance telephone service at 877-829-5500 (a toll-free number) between the hours of 8:30 a.m. and 4:30 p.m. Eastern Time, Monday through Friday. Alternatively, you can direct your questions to Mr. Hogan by sending a question via electronic mail to RetirementPlanQuestions@irs.gov.